Nikkei 225 Index – Definition and Characteristics

What is the Nikkei 225 Index?

The Nikkei 225 Index is a key Nikkei market index representing the performance of the Tokyo Stock Exchange. It is a price-weighted index, meaning that stocks with higher prices have a greater impact on the index's movements. Unlike market-cap-weighted indices, the Nikkei index does not take a company's total market capitalization into account.

As of early 2022, Fast Retailing Ltd has the most significant influence on the Nikkei stock index, accounting for 11.2% of the index. Meanwhile, Toyota Motor Corp, despite having a significantly larger market capitalization, comprises only 1.2% of the Nikkei 225. This highlights one of the key disadvantages of price-weighted indices.

Companies Included in the Nikkei 225 Index

The Nikkei 225 includes 225 major Japanese companies across various sectors. Some of the most notable ones are:

Toyota Motor Corp

Fast Retailing Ltd

Sony

Softbank

Mitsubishi Financial Group

Daikin

Honda

Mizuho Financial Group

Panasonic

Canon

Nissan

Sector Breakdown of the Nikkei 225

The Nikkei market index has a strong representation of technology and industrial companies. The highest sector weighting belongs to:

Information Technology: 25% of the index
Industrials: 20% of the index
Consumer Discretionary: 19% of the index

Historical Background and Development

The Nikkei index was first introduced on July 9, 1950, as Japan's economy was recovering from World War II. It has since become one of the most widely tracked stock market indices globally, often compared with the S&P 500 and Dow Jones Industrial Average.

Specification of Trading Instruments

Symbol

Swap long

Swap short

Swap type

Contract size

Min. trade size

Tick size

Tick value

Dividend charges

NIKKEI

-3.3

-2.2

by interest

0.01

1000

Nikkei 225 Performance and Trends

The performance of the Nikkei stock index has been heavily influenced by the Bank of Japan's (BOJ) monetary policies. Between 2013 and 2017, the BOJ held around 75% of all Japanese Exchange-Traded Funds (ETFs) and was a top 10 shareholder in 90% of the Nikkei 225 companies.

As a result, the Nikkei 225 surpassed the psychological level of 30,000 JPY in February 2021, reaching a 30-year high. However, it has since experienced lower lows and lower highs, indicating a potential bearish trend. Despite this, the index remains 50% higher compared to its January 2015 levels. While the Nikkei index underperforms U.S. equities, short-term traders appreciate its volatility.

_{Source: Purple Trading Metatrader 4}

Nikkei 225 - quotes and trading

You can trade the technology index - Nikkei 225 index in our Purple Trading platforms MetaTrader 4 and MetaTrader 5 or cTrader platform. First, find the ticker NIKKEI in the MetaTrader 4 platform and press the new order button. The following window will pop up.

^{Source: Purple Trading Metatrader 4}

Understanding Lot Value Calculation

When trading the Nikkei 225, understanding lot values is essential:

One micro lot (0.01) = Smallest tradable unit.
One mini lot (0.1) = A 100 JPY move equals a gain/loss of 10,000 JPY.
Half a lot (0.5) = A 100 JPY move equals a gain/loss of 50,000 JPY.

For example, if you buy 0.5 lots at 27,000 JPY and the Nikkei 225 rises to 27,100 JPY, your profit will be 50,000 JPY (100 JPY movement * 500 JPY per point). The same logic applies when shorting the Nikkei stock index.

Currency Considerations

The Nikkei index is denominated in Japanese Yen (JPY). If your trading account is in EUR or USD, your profits or losses will be converted based on EUR/JPY or USD/JPY exchange rates. Be sure to check the latest exchange rates when calculating potential earnings or losses.

Key Takeaways

The Nikkei 225 index is a price-weighted stock index representing 225 major Japanese companies.
Fast Retailing Ltd has the highest influence, even though companies like Toyota Motor Corp have a larger market capitalization.
The index is heavily influenced by the Bank of Japan's monetary policies.
You can trade the Nikkei market index on MetaTrader 4 and cTrader platforms. It is denominated in JPY, and currency conversions may affect profits and losses.

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