CAC 40: what is it and how do you trade it?
The CAC 40 index is used as a benchmark of how the French market is performing. As one of the major stock indices in Europe, it’s a useful indicator for traders. Discover what the CAC 40 is, and how it works.
What is the CAC 40?
The CAC 40 is a stock market index that tracks the 40 largest shares listed on the Paris Stock Exchange. The selection of stocks are based on market capitalisation and the index is commonly used as an indicator of France’s market performance.
As the benchmark index for the French market, the CAC 40 is one of the biggest European stock markets, hence it’s one of the most important national indices of the pan-European stock exchange group, Euronext.
The CAC 40 initially started with a base level of 1000 on 31 December 1987. Like most stock markets around the world, the dot-com bubble around the early 2000s saw the index hit an all-time high of 6922.33 points.
CAC stands for ‘Cotation Assistée en Continu’, loosely translated in English to ‘continuous assisted trading’. The name is derived from its value being updated every 15 seconds from Monday to Friday between 9am and 5.30pm (CET).
What companies are in the CAC 40 index?
Some of the big names on the CAC 40 index include LVMH, L’Oréal, Hermès, TotalEnergies and Sanofi. These are five of the 40 companies that are reviewed every quarter by an independent committee, with the ranking often changing based on the current value of their turnover from the previous 12 months, and the overall market capitalisation.
While most of the companies listed on the CAC 40 consist of France-based corporations, the index comprises of the highest number of multinational stocks in comparison to other European markets. This means that you’ll find approximately 45% of the listed stocks owned by foreign investors.
Why trade the CAC 40 index?
The CAC 40 index is popular among traders because it’s one of the most liquid stock market indices in the world. This means that the market fluctuates very quickly, presenting you with the opportunity to buy and sell the index in the short term.
France has one fifth of the Euro area gross domestic product (GDP), which represents around the fifth largest economy in the world.1 You can take a bullish or bearish position depending on news updates about the economy or quarterly results of individual CAC 40 stocks.
Some of the reasons why traders get exposure to the CAC 40 include:
- The Paris Stock Exchange has a fixed opening and closing time. This enables you to identify trends and patterns that develop and get exposure. We offer extended hours to enable you to trade before and after the fixed opening and closing time using our derivative product
- The CAC 40 is the easiest way to take a position on the French market. Traders can also use fundamental analysis when monitoring news updates, monetary policy, macro and micropolitics to understand price movements before making a prediction
- You can distribute risk by trading the CAC 40 instead of a single company stock
How to trade the CAC 40
- Open a live account or practise on a demo
- Take steps to manage your risk
- Place your deal and monitor your position
When trading on a CFD account, you won’t take ownership of the underlying asset outright, but you’ll be speculating on the France 40 price rising or falling. You can also use CFDs to trade stocks and ETFs with us.
Trade the CAC 40 price directly
You’ll trade the CAC 40 price directly via our France 40 offering. Using our derivative product, you’ll buy or sell CFD contracts to exchange the price difference of the France 40 between the opening and closing position.
To get exposure, you’ll go long if you believe that the market price will rise or go short if you think that it’ll fall. Your profit or loss will depend on the outcome of your prediction.
You can trade via the spot price, which is closest to the underlying price with low spreads, but includes overnight fees. Alternatively, you can trade via futures contracts, which have wider spreads but no overnight fees.
Trade CAC 40 ETFs
You can trade CAC 40-linked ETFs or fund shares using our derivative product to speculate on price movements. When trading, it’s better to do so on the index directly to trade the real price, which has lower spreads, higher liquidity, and longer market hours.
Trade individual CAC 40 stocks
You can also get exposure by trading individual stocks that make up the CAC 40 index. These are the top 40 France-based companies, whereby you can speculate on their price rising and falling or simply buy a stake in the company. Some of the companies that you’ll find include L’Oréal, Renault, Michelin and many others.
CAC 40 summed up
- The CAC 40 is a stock market index that tracks the 40 largest France-based shares listed on the Paris Stock Exchange
- Traders often choose to get exposure to the CAC 40 because it’s one of the most liquid markets around
- You’ll find global brands like L’Oréal, LVMH, Renault and many others on the CAC 40 index, with all shares listed being ranked by market capitalisation
- You can speculate on the individual stocks that make up the top 40 France-based companies or trade the CAC 40 directly via our France 40 offering using our CFD trading account
Footnotes
1 Focus Economy, 2022
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
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