Since its launch in 2000, the ASX 200 has been recognized as “the institutional investable benchmark” in Australia. Its large size and liquidity is ideal for investment managers who want to invest their money in Australian indices.
This index is a capitalization-weighted index, whose stocks are listed on the Australian Stock Exchange. The ASX 200 gathers the companies under the ASX 100, plus 100 other large companies. It is thus a great indication of the overall health of the Australia economy.
How can you trade the ASX 200 index?
One of the most interesting ways to trade the Australian index is via CFDs, or Contracts for Difference.
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When you trade CFDs on indices, you’re betting on whether the value of the index is going to increase or fall in the future. CFDs are an agreement, usually between you and your broker, to exchange the value of an underlying asset between the opening and the closing price of a trading position.
Here on easymarkets.com, you can monitor the price evolution of the ASX 200 index through its CFD, as well as all kinds of useful information to take advantage of both rising and falling prices, depending on how well the Australian economy is going.
Know the composition of the ASX 200 index to use correlation to your advantage
If you know what sectors have the biggest influence on the Australian indices, you will able to take advantage of this in your trading. You will also be able to use CFDs for higher portfolio diversification.
As of June 28th, 2019, the top 5 most important business activities of the companies composing the ASX200 index are:
– financials (32%) with companies like Commonwealth Bank of Australia
– materials (18.9%) with companies like BHP Group Limited
– health care (8.5%) with companies like CSL Limited
– industrials (8.5%) with companies like Transurban Group
– and real estate (7.5%) with companies like Goodman Group
You can decide to invest on the ASX 200 index, but you can also trade its various components as well. To do so, you need to choose shares that do not belong to the same business activity – so then they’ll be negatively correlated, meaning that their prices won’t go in the same direction. In this way, you will be able to reduce your portfolio risk, while taking advantage of higher diversification.
Monitor the economic calendar to keep an eye on major statistics and benefit from higher volatility on the ASX 200
It’s always important to be aware of financial and economic statistics or reports that are scheduled to come out. Then you’ll always be aware of events that can trigger higher market volatility, so you can adjust your trading parameters accordingly and protect your capital.
The most important statistics you need to follow are the GDP, inflation, and employment figures, which are all important factors that the Australian central bank (RBA) takes into account when deciding what the official interest rate should be.
If you’re a trader who likes to trade on news, using CFDs with the help of the economic calendar to take advantage of this potential volatility is great, as you can make short and quick profits thanks to leverage and margin trading.