Trade the Nikkei 225 Online | FXTRADING.com - International

Trade the Nikkei 225 Online

Trade the Nikkei 225 with an ASIC regulated broker

Trade Japan’s premier stock market index via our JP225 CFD. Enjoy our fast-execution, tight spreads and zero commission in an unrestricted trading environment, all through an ASIC regulated broker.

A Primer on the Nikkei 225

The Nikkei 225 is frequently referred to as the “Nikkei Index” or simply the “Nikkei” in financial media. It is Japan’s prime stock market index, trades on the Tokyo Stock Exchange and has been in operation for nearly 70 years.

  • Launched in 1950
  • Includes the 225 largest companies in Japan
  • Contains 6 broad sectors
  • It’s a Price-weighted index
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Launched in 1950
The Nikkei was first calculated in September 1950, although the index was later retrospectively calculated to start from May 1949 (the month that the Tokyo Stock Exchange reopened following the Second World War). Data has since been recalculated with an artificial start in December 1949. After nearly 7 decades of actual trading, the Nikkei has endured 16 business cycles using OECD’s methodology.

Over that period, it has seen its fair share of volatility. Starting around 100 in 1950, it had an all-time high of 39,957.44 in 1989 yet managed to shed over 80% of its value over the next 19 years with a low of 6,994.90 in 2008.

Includes the 225 largest companies in Japan
The Nikkei Index includes 225 of the largest-cap stocks listed in Japan, and the constituent list is reviewed each year in October. Stocks are selected on their levels of liquidity and ‘sector balance’ to make sure there is an even spread among the 6 main sectors of the Nikkei.

The Nikkei Includes 6 Broad Sectors
With over two hundred stocks covering six broad sectors, the Nikkei has mostly been viewed as a decent barometer of the Japanese economy. However, critics have pointed out that the Bank of Japan’s purchased of up to 75% of the ETF market has distorted prices within the index, which in turns undermines its ability to truly represent the economy.

Six broad sectors for the Nikkei 225:

  • Technology
  • Financials
  • Consumer Goods
  • Materials
  • Capital Goods / Others
  • Transportation and Utilities

The Nikkei is a Price-weighted Index
Like the Dow Jones Industrial Average, the Nikkei also uses a price-weighted adjustment for stocks within the index. This means that shares with a higher price will have a larger impact on the overall index than lower-priced shares.

How Can You Trade the Nikkei 225?

With the Nikkei 225 being an index and not a tradable instrument directly, traders previously had to access it via derivates such as futures or options markets to trade it. However, FXTRADING.com offer access to index trading via CFDs (contract for difference) which are an increasingly popular form of derivate.

Unlike a futures or options market, a CFD does not mean a trader is entering a contract to take delivery of the market in future or become the owner of the underlying market. Yet traders can still access live market pricing, with margin requirements (collateral) at a fraction of the cost of traditional derivate markets.

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Long example: Nikkei 225 (JP225 CFD)
A trader buys 50 contracts of the JP225 CFD at 22,500 (converted to USD with USD/JPY at 1.05)

  • If the price rises to 26,000 the trader could exit for a profit around ¥175,500 (≈USD $1,665)
    • (# contracts x contract size) x (exit price – entry)
    • (50 x 1) x (26,000 – 25,500)
  • If the price falls to 21,200 the trader could exit for a loss around – ¥65,000 (≈USD $620)
    • (# contracts x contract size) x (exit price – entry)
    • (50 x 1) x (21,200 – 25,500)
  • A 1% margin requirement with 100:1 leverage requires ¥11,250 of capital (≈USD $108)
    • (# contracts x contract size x price) / leverage
    • (50 x 1 x 22,500) / 100

 

Short example: Nikkei 225 (JP225 CFD)
A trader sells 20 contracts of the JP225 CFD at 18,500

  • If the index falls to 17,500 the trader could exit for a profit around ¥20,000 (≈USD $190)
    • (# contracts x contract size) x (entry – exit price)
    • (20 x 1) x (18,500 – 17,500)
  • If the index rises to 19,000 the trader could exit for a loss of around -¥10,000 (≈USD $95)
    • (# contracts x contract size) x (entry – exit price)
    • (20 x 1) x (18,500 – 19,000)
  • A 1% margin requirement with 100:1 leverage requires ¥3,700 of capital (≈USD $35)
    • (# contracts x contract size x price) / leverage
    • (20 x 1 x 18,500) / 100

 

Costs associated With CFDs

Spread:
Within the MT4 platform you will see bid and ask prices on the ‘Market Watch’ table and deal ticket. The difference between these two prices (bid – ask) is the spread, and it is a nominal transaction cost applied at the point of entry.

The spread is a variable rate and its width (cost) is dictated by available liquidity and trading activity. During periods of high trading volume (such as when the underlying exchange is open) we would generally expect to see a tighter spread. However, the spread can widen during periods of low trading activity such as out of hours trading, or around news and economic data events.

In this example, the spread is 10 index points (equivalent to ¥10, or ≈ USD $0.10).

JP225
Bid / Ask:
22,450.00 / 22,460.00

In the next example, the spread is 15 index points (equivalent to ¥10, or ≈ USD $0.15).

JP225
Bid / Ask:
19,220.00 / 19,235.00

Swaps:
If trades are held overnight, they will have a swap calculation applied to them which can either be a nominal credit or debit. Swaps are derived from an interbank interest rate and can either be positive or negative, depending on whether the trade is long or short and what the underlying interest rate is.

As swaps are calculated 365 day per year yet markets generally trade 5 days per week, a ‘triple swap’ day is calculated on Friday to account for the market being closed over the weekend.

Market Drivers for the Nikkei 225

  • Exchange rate (Japanese yen)
  • Global Equities
  • Bank lending
  • Bank of Japan (BOJ)
  • Economic data
  • Higher-priced stocks
  • Risk-appetite
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Exchange rate (Japanese yen)
Japan’s economy is heavily reliant upon their export market, which means the Japanese yen (JPY) plays a crucial role in the level of exports and how much revenue export companies generate. Ultimately the Nikkei and JPY share an inverted correlation, so a weaker JPY supports exports, increases revenue for export companies and therefore index prices. Whereas a stronger currency can erode the level of exports, company revenue and therefore share prices.

Global Equities
Whilst the relationship is not perfect, global equities tend to move in tandem over the medium-long term. We could lump global growth here too as equities perform well in an expansive economy, so if global growth is rising it can provide a tailwind for global equities.

However, even on a daily basis the relationship can hold true. If sentiment in the US session was a net positive for stocks, we could expect equity markets across Asia start the session on a positive note, assuming no overwhelmingly bearish factors are present domestically.

For this reason, traders keep a close eye on several global indices as it helps them determine a broader view of equity sentiment.

Bank of Japan (BOJ)
Central banks can make or break trends across all major asset classes. If BOJ are dovish they can provide monetary policy stimulus in the form of rate cuts, QE (quantitative easing) and increasing the money supply. This is generally a net positive for share markets.

Therefor traders keep a close eye on what BOJ members say in public speeches and during their meetings, as it can have a direct impact on the Nikkei 225.

Bank Lending
Whilst this is related to the BOJ (as they set the interest rates for banks to lend), there is a strong correlation between the Nikkei and level of bank lending. Typically, we tend to see the Nikkei perform well when bank lending is growing and underperform if bank lending is diminishing.

Economic Data
Macro-economic data can make an impact on the Nikkei, and the level of volatility of the reaction tends to widen the further away the data diverges from their forecasts. Generally speaking, if data improves enough to suggest future growth (GDP) then it can be supportive of share prices. Whilst weak economic data can weigh on equity prices if it suggests weaker GDP.

However, there comes a point where if data is too strong or weak overall, traders sometimes anticipate action from BOJ and the market can move counterintuitively. For example, if economic data is extremely weak then traders can assume stimulus from the central bank of government which can actually send share prices higher.

Higher-Priced Stocks
As the Nikkei 225 is a price-weighted index, astute Nikkei traders could monitor higher-priced stocks as it may provide clues as to the direction of the overall index. For example, traders may want to track the 20 highest stocks ranked from most expensive.

Risk-Appetite
Indices such as the Nikkei are viewed as a risker asset, which means investors tend to buy them during periods of risk-on when they feel comfortable about inheriting more risk. However, this also means they tends to sell riskier assets during bouts of risk-off.

As mentioned above, the Nikkei shares an inverted relationship with the Japanese yen which itself is a safe-haven asset.  It then makes sense for traders to monitor the Japanese yen alongside Nikkei and other global indices for a broader view of risk sentiment.

Statistics of the Nikkei 225

Throughout the calendar year, some markets tend to perform better or worse. In the case of stock markets, they generally perform well in Q4 but can produce higher volatility and less predictable results in August. Whilst this is not always the case, these patterns occur often enough to warrant a look. Below we look at some basic statistics for the Nikkei over the past 30 years.

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Monthly-Close Statistics for the Nikkei 225:
Between January 1990 and December 2019 (30 years)

  • 8 out of 12 months (66.7%) closed higher for the month
  • April, October and December posted the highest average returns of 2.2%, 1.8% and 1.4% respectively.
  • April closed higher 80% of the time, October and December closed higher 73.3% of the time
  • 4 out of 12 months (33.3%) close lower for the month
  • June, August and September posted an average negative return of -0.8%, -1.5% and -1.2% respectively
  • June and August closed lower 60% and 57.7% of the time respectively

Why Trade the Nikkei 225?

  • Trade long and short
  • Low margin requirements
  • Trade a Directional View on the Japanese Economy
  • Trade Risk-Sentiment with the Nikkei 225
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Trade Long and Short
The ability to trade both long (bullish) and short (bearish) means traders are free to take advantage of rising and falling markets. This is a luxury not always present in futures markets which can limit the ability for traders enter a new position or exit a current one if they hit ‘limit-up’ or ‘limit-down’.

Low Margin Requirements
Due to higher levels of leverage available for CFDs, margin requirements remain extremely low, which makes index trading more accessible to traders of all levels.

Trade a Directional View on the Japanese Economy
With six broad sectors and over 200 stocks, the Nikkei 225 manages to cover a broad spectrum of the economy and can also be taken as a proxy for Asian sentiment. If a trader has a fundamentally bullish view on Japan, they could look to invest in the Nikkei 225 in hope that it will rise in future. Conversely, they could take bearish positions if they had a negative view on the Japanese economy.

Trade Risk-Sentiment with the Nikkei
Sentiment is a key driver for global markets. And with stocks viewed as being a riskier asset, stock market indices such as the Nikkei are sensitive to the sift in investor sentiment. During bouts of risk-on we typically expect indices to rise, whilst bouts of risk-off can trigger sell-off in equity markets and push indices lower.

However, in the case of the Nikkei we also have the currency to take into consideration. If risk-off triggers a flight to safety into the Japanese yen, it can bring further downside pressure onto the Nikkei as investors de-risk.

Why Trade the Nikkei 225 with FXTRADING.com?

  • Competitive Spreads
  • Lightning-quick trade execution
  • Trade the Nikkei 225 around the clock
  • Scalpers, HFT’s and automated traders welcome
  • Trade with MT4 across multiple devices
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Competitive Spreads
We offer some of the tightest spreads in the industry thanks to your relationships with top-tier liquidity providers. Overheads matter, so that’s why we aim to make your trading costs as minimal as possible.

Lightning-Quick Trade Execution
We have invested heavily in our trading infrastructure to present you with a fast execution service, free from any dealing desk.

Trade the Nikkei 225 Index Around the Clock
The official trading hours for the Nikkei are split over an AM and PM session, five says a week. The first session is between 09:00 – 11:30 and the PM session is between 12:30 – 15:00, for a 6-hour session overall.

However, via our MT4 platform our traders have access to real-time prices for Nikkei trading 23 hours a day, 5 days a week.

Scalpers, HFT’s and automated traders welcome
Our fast execution trading servers, tight spreads and no-commission policy means our trading environment is suited to scalpers, HFT’s (high frequency traders) and EA (expert advisor) traders.

Trade with MT4 Across Multiple Devices
MT4 remains the worlds most popular trading platform with a global user base. Trade forex, commodities and indices from our MT4 desktop, tablet, handheld device or web browser terminal.

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