The Best Australia Can Offer – The ASX 200

ASX 200 | Important Facts to Start Trading the Index

The ASX 200 is a stock market index based on the 200 largest Australian Stock Exchange (ASX) listed companies. Currently maintained by Standard and Poor (S&P), ASX 200 is considered as the benchmark for Australian equity performance. 

Index trading is a practical addition to financial strategies because it helps to diversify investment portfolio. An index, whether it is the ASX 200, FTSE 100, DAX 30, or CAC 40, comprises a broad basket of stocks. Traders do not have to invest in separate company stocks. Instead, they can go for an index that includes the major companies in a country.

The ASX 200 is market capitalization-weighted and float-adjusted, measuring the combined movements of these public firms in points and tracks. As of the March 2018 figures, companies under this index make up about 86 percent of Australia’s total share market capitalization. 

This index was specially designed for investment managers with Australian securities to acquire a sufficiently huge and liquid portfolio with which they can compare their investment performance in. 

Properties 

  1. Capitalization-weighted 
    A company’s contribution to the index with this property is relative to its total market value. Share prices then are multiplied by their number of tradable shares. 
  2. Float-adjusted
    In ASX 200, the absolute numerical contribution of a company to the index is relative to its share value at the float of the share. 
  3. Equipped with a divisor 
    ASX 200 has a fudge factor called “divisor” to ensure that the value of the index only changes when stock prices do, not depending on the movements of the market capitalization. 
  4. Dynamic composition
    The index is composed of a variety of industries in 11 sectors, which however, has two leading significant divisions: financial and material. These sectors are subdivided into 24 industry groups, 68 industries, and 157 sub-industries.
    Also, ASX 200 is comprised of the major ASX 100 plus another 100 stocks and an Exchange-Traded Fund (ETF) that owns and tracks it. 
  5. Liquid and tradable
    ASX 200 aims to provide a liquid and tradable index, the reason why it is considered as Australia’s preeminent benchmark index for institutional investors. It is rebalanced by a five-panel “Index Committee,” ensuring listing criteria and liquidity are maintained.
    ASX 200 esteems its benchmark credibility by imposing high eligibility requirements on its listed companies. Aspiring firms need to pass its market capitalization, liquidity and listing standards before being included in the index.

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Written by:
Omer Aragón Godínez

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