Australian Stock Exchange 200 - Index

Instrument description

The ASX stands for ASX Australian Securities Exchange. The ASX 200 comprises 200 of the largest companies according to market capitalization in the Australian Stock Exchange. The ASX is located in Sydney, and the current exchange is the merger of the Sydney Futures Exchange and the Australian Stock Exchange in 1999. The ASX 200 acts as a measure of value and performance of the equity market, and it also acts as a payments facilitator, clearing house, market operator. The ASX also provides educational materials to aspiring traders and investors.

According to statistics, the ASX 200 has almost 2,200 listed companies, around 180 participants, and around 7 million shareowners. The ASX Index is ranked among the top global exchanges that also includes the New York Stock Exchange (NYSE), the NASDAQ, and the Financial Times Stock Exchange (FTSE). The ASX Index has a particular listing requirement that consists of minimum capital requirements and monthly financial reports.

History of ASX 200

The ASX 200 has a market capitalization of nearly $2 Trillion with some of the prominent technology, finance, and resource companies. The ASX 200 also has an additional $47 Trillion interest rate derivatives, which makes it the largest derivative market in Asia. The ASX 200 is managed by Standard & Poor, so it also written as S&P ASX 200. The 200 companies included in the ASX 200 are selected by a method called the market capitalization float-adjusted.

Index trading has grown into a less stressful means for an investor to diversify his portfolio as he does not have to participate and buy or sell the individual stocks of a company but invest in an index which is a single platform that includes the most financially active and stable companies operating in the country. The 200 companies in the ASX 200 consist of companies operating in 11 different sectors, which are further divided into 68 industries, 24 industry groups, and 157 sub-industries. But the ASX 200 is dominated by sectors that are Financial (47%) and Materials (14.5%). Some of the famous companies in the ASX 200 include Broken Hill Propriety (BHP Billiton), ResMed (RMD), Commonwealth Bank, CSL Limited, Westpac Banking Corporation, Rio Tinto, and National Australia Bank.

We live in a digital age, and like many of the leading Exchanges, the ASX 200 also depends on electronic trading and a robust data center helps to connect particular financial centers of the world. Electronic trading has gained popularity in recent years, and an electronic exchange helps list new and fast-growing companies. Although cybersecurity is a growing concern but steps are being taken to make electronic trading more secure.

The ASX 200 has a specific benchmark or criteria that is ensured if the eligibility criteria is met and followed by the listed companies. The companies vying to be included in the prestigious ASX 200 Index must meet the market capitalization, liquidity requirements along with listing standards. The rebalancing or buying and selling of assets in the portfolio in the ASX Index is done by a five member committee that meets quarterly and ensures that all the requirements are fulfilled. The rebalancing is done in March, June, September, and December. However, if a merger or delisting happens, then an intra-quarter may be called and held.

The ASX Index plays a special focus in encouraging people to invest in stocks and increase their chance to potentially profit. The ASX Index provides numerous educational material about investing in stocks for the general public. For instance, as a first-time investor, you will be free to use resources and understand the assets classes, public markets and learn how to plan and implement an investment strategy. You can download tutorials and guidebooks from the website of ASX Index and also participate in demo trading where there is no risk of losing any money, and you can learn the basics of stock trading.

How the value of ASX 200 is calculated

The traders usually select the ASX 200 because of its easy access and exposure to considerable market price changes. The trading hours of the ASX index are 10:00 to 16:00 (GMT) from Monday to Thursday. The ASX 200 is known for its wide trading volume and typical volatility, which attracts the short term traders. The ASX index also serves as an underlying asset which the traders can use as a derivative financial instrument for Contract for Difference (CFD) trading.

The indices all over the world are either capitalization-weighted or price-weighted Index, and the ASX 200 is capitalization-weighted. The market capitalization or commonly called market-cap, is calculated by multiplying the number of shares by the share price, such as if a company has issued 20 Million shares, and the share price is 250p. The market capitalization of the particular company is £50 Million. The bigger market cap companies tend to have a significant influence on the share price of ASX 200.

How to read the price change in ASX 200

The ASX 200 is also float-adjusted, which means that the Index only includes the shares that are open to traders and investors, and the shares held by the government or other companies are not included. The free-floating method is used by many of the popular indices in the world where the changes in value of the Index reflects the changes in the share price and not the full market capitalization. An index divisor may also be used to maintain the performance of the Index and remove any external factors that do not directly impact or change the market direction. For example, if a company issue new shares that increases its market capitalization, then the divisor acts and make an adjustment, and the overall value of the ASX Index stays the same.

The ASX 200 showed Bullish trend from August 2019 to February 2020, and the Index value remained between ranges of 6250.0 to 7250.0. The ASX 200 reached the highest value of 7163.7 on February 20, 2020. But then there is a certain Bearish trend being observed since mid-February, and ASX Index recorded the lowest value of 4526.3 on March 23, 2020. The ASX Index was last traded at 5897.9 AUD. The market capitalization is $2 Trillion. The Bid price is 5944, while the Ask price is 5940.

How to trade in ASX 200

The ASX 200 is an established financial market and one of the top-ranked Index. The ASX 200 allows traders and investors to gain access to some of the best and financially strong companies. You can get access to the Australian Stock Market without buying or owning individual shares. You can invest in the ASX 200 through Future Contract. Exchange-Traded Fund (ETFs), or Contract for Difference (CFDs)

One popular way to trade in ASX 200 is by using CFDs, which is a contract between two parties where one is a broker and the other is a trader. CFDs are a derivative financial instruments where the broker or trader agrees to pay the difference in the value of the asset from the start to the end of the trade. With CFDs, the trader can try to predict the direction of the market and the price changes of the underlying share without having to own the share. The traders can also trade in both directions by using CFDs, which is going Long or Short when making a trade and speculating whether the price of the asset will fall or rise. CFDs give the chance to gain from either Bearish or Bullish market trends if the prediction is correct, otherwise loss will result.

What causes the price change of ASX 200?

The daily changes in the ASX 200 are measured mostly in points or percentages. The ASX index adds or removes the company after every quarter based on its performance and whether the company meets the eligibility criteria or not. The fundamental economic principle of supply and demand plays a crucial role in determining share prices. For example, if more people want to buy a share, then sell it, then the price of a share will rise as the demand for share is more than the supply. On the contrary, if more people sell the share, then buy it, then the share will fall as the supply of share will be more than the demand.

Apart from supply and demand, other factors that determine the share price is the economic health of the company and its performance. Also, the buyers and sellers in the market decide whether the share is over or undervalued. If more buyers come into the market, the demand and share price will go up, particularly if the supply is low. The share price only moves little when the supply is equal to demand, and that only happens occasionally.

The fundamental factors that affect the share prices and the company’s performance are interest rates, inflation, and growth or decline of the company. Market sentiment is also a crucial factor in determining the direction of the market. The fundamental analysis is done through P/E ratios, Return on Equity (ROE), and Dividend Yield, while the technical analysis is done by examining the historical charts, trend lines, and candlestick charts to predict the pattern and price movements.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.