Continuous Assisted Quotation 40 – Index

Instrument description

The French Stock or Securities Exchange is called the CAC (Cotation Assistée en Continu) 40. The CAC 40 is the benchmark that represents and tracks 40 of the largest market capitalization companies out of the 100 companies listed on the Euronext Paris Exchange. The CAC Index or CAC 40 is one of the most influential stock markets in Europe and also the most important Index of the Pan European Stock Exchange Group called ‘Euronext.’

The CAC 40 is the French blue-chip stock market index similar to the Footsie in the UK, ASX in Australia, and DAX in Germany. The CAC 40 allows traders and investors to gain exposure to large and economically stable French listed shares. The daily volatility is what appeals to the short term traders who can speculate the price changes of the share to magnify their profits.

History of CAC 40 Index

France is considered to be one of the few biggest economies of Europe, along with UK and Germany. According to statistics, France represents one-fifth of the total economy among the European countries. The CAC 40 allows traders to understand the dynamics of the European economy, and CAC 40 also acts as an indicator of the economic performance of many major companies operating in France. The CAC index is maintained by the Euronext exchange group that not only holds the Pan-European exchange but works in major cities of Europe that includes Paris, Brussels, Lisbon, and Amsterdam.

The CAC may sound an unusual name to many as most of the indices in the world are named according to initials of the region or place such as ASX 200 (Australian Securities Exchange) or NYSE (New York Stock Exchange). The ‘CAC’ first denoted to ‘Compagnie des Agents de Change’ and signified a group that run the Paris Stock Exchange way back in 1801. The ancient stock exchange automation system was ended in January 1988 due to Stock Market reforms, and ‘Société des Bourses Françaises’ was named as a limited company.

However, the CAC retained the name but was now called ‘Cotation Assistée en Continu,’ which translates to ‘Continuous Assisted Quotation.’ The CAC was launched on December 31, 1987, and the base value was set at 1000. The highest value that the CAC index ever achieved was 6922.33 points in September, 2000 and lowest value was 893.82 in January, 1988.

Today, the market capitalization of CAC 40 is nearly €1.1 trillion. CAC 40 includes companies from numerous sectors such as aviation, telecommunications, pharmaceutical, banking, apparel, automakers, industrial materials, oil and gas, and insurance. Some of the notable companies included in the CAC 40 list are Sanofi, L’Oreal, Total, BNP Paribas, Louis Vuitton (LVMH), Airbus Group, Vinci, and Orange.

The ‘Le Conseil Scientifique’ is the council or committee which meets quarterly to review the performance of existing companies in the CAC 40 and the aspiring companies that are wanting to become part of the prestigious CAC 40 index. The Committee includes members from France Central Bank, French Market Regulator, and French Treasury Department. The Committee will look into the top 100 market cap companies in Euronext and select the 40 biggest companies to enter the CAC index. If any company is added or removed, then the changes are done after independent reviewing, and it takes two weeks for change in the Index to take effect.

How the value of CAC 40 is calculated

The traders usually select the CAC 40 because of its growing popularity and volatility. The trading hours of the CAC index are from 7:00 A.M to 5:15 P.M (UK Timings) from Monday to Thursday. The trading hours add up to 10 hours and 15 minutes, which are the longest trading hours in Europe. The CAC 40 is also known as a ‘Cash Index’ as it trades between these hours.

Like every other stock index, the CAC 40 cannot be bought or sold like a stock. The indices all over the world are mostly capitalization-weighted, and some are price-weighted Index. The CAC 40 is a capitalization-weighted index. The market capitalization also called market-cap, is measured by multiplying the number of shares by the share price. For instance, if a company has issued 20 Million shares, and the share price is 150p. The market capitalization of a specific company will be £30 Million.

As the CAC is a market-cap index, the contribution of the company is proportional to its total market value. The companies with a bigger market cap are likely to have a major influence on the share price of CAC 40. The CAC 40 signifies the top 40 companies of France listed in the Euronext Paris Exchange. The companies in the CAC 40 list are reviewed after every quarter, and the best companies are selected based on a ranking system.

First, the value of the regulated turnover of the companies in the previous 12-month period is reviewed. Second, the free-float adjusted market capitalization of the companies are analyzed. There are many companies ranked from 36 to 45 that are placed in a riser-faller buffer zone, which means many companies can make it to the CAC 40 list, and some of the companies can miss out. But the priority is given to the companies that are already on the list.

How to read the price change in CAC 40

The CAC 40 is a highly active Index and located in Paris; the CAC index acts as a financial hub in the Euro-Zone. Due to its frequent activity, both the short term traders and long term investors get plenty of opportunities to have the possibility to potentially profitevery single day.

The CAC 40 showed Bullish trend from August 2019 to February 2020, and the Index value remained between ranges of 5250.0 to 6250.0. The CAC 40 reached the highest value of 6162.20 on February 19, 2020. But there is a clear downward and Bearish trend being observed since the end of February, and CAC 40 recorded the lowest value of 3744.04 on March 18, 2020. The CAC 40 has again started to regain momentum and was last traded at 4942.36 EUR. The market capitalization is 1.1 Trillion Euro. The Bid price is 4941.4, while the Ask price is 4938.2.

How to trade in CAC 40

There are several ways to invest in the CAC Index. First, you need to choose whether you will be a day trader (doing trades in the day) or a swing trader (doing trades at the end of the day). Second, you need to plan and execute a strategy that will only have a chance to be successful if you combine fundamental and technical analysis.

You can start trading in the CAC 40 through Contract for Difference (CFDs), where you have the option of using leverage, which means opening a relatively larger trading position by just depositing a small amount in your account. With CFDs, you do not need to buy and own the asset, but you trade on the price difference of the underlying asset.

You also get the luxury of trading in both directions through CFDs. You can go Long or Short when predicting the rise or fall in the price of the share. If you think the market will see an upward trend, then you will go long or Buy, and if you think the market will see a downward trend, then you will go short or sell. With CFDs, you have the chance to magnify your profits, but there is also equal risk of considerable losses if the market moves in the opposite direction to your speculation. Hence, you may want to implement a risk management strategy to try to minimize your financial loss.

What causes the price change of CAC 40?

The CAC 40 can be an attractive option to diversify an investment portfolio, but the traders need to take a closer look at the price changes and take help from technical analysis, and the investors should examine the fundamental factors. The CAC 40 is known to witness tremendous volatility during the day to day trading. The main factors that influence the CAC 40 index are

• Supply and Demand
• Economic factors such as interest rates, inflation, and performance of the companies
• The market trends and market sentiments
• Domestic political and economic stability; and
• Global political and financial events

The investors will be more inclined to buy a stock if it has strong earning potential, and the profits are consistent. As the CAC index comprises of individual companies, the performance of each company also matters and the sector the company is involved in. The goods or services of the company and future growth or decline of the company also helps to determine the future value of the company’s stock and the overall value of CAC 40 index. Investing in the CAC index not only there is diversification due to the companies operating in numerous sectors, but it is a bigger index where the market moves smoothly as compared to the movement of individual shares of the company.

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