Nikkei 225: what is it and how do you trade or invest in it?

What is the Nikkei 225 index?

The Nikkei index (also referred to as the Nikkei 225) is a stock market that lists the 225 largest companies based in Japan. The featured stocks on the index are weighted based on share price.

As the main index traded on the Tokyo Stock Exchange (JPX), the Nikkei 225’s performance is representative of what’s happening in the Japanese economy. Due to the size of the Japanese economy and its position on the continent, the Nikkei 225 index can be a useful indicator of market sentiments in the region of East Asia.

The Japanese stock index used to be called the Nikkei Dow Jones Stock Average, from 1975 to 1985. It was later changed, named after the Nihon Keizai Shimbun or Japan Economic Newspaper, which is commonly known as Nikkei.

What are the Nikkei 225 companies?

The companies listed on the Nikkei 225 index include global brands such as Sony, Canon, Toyota, Nissan and many others. The 225 companies are spread out over 35 industries, with each stock measured based on its performance.

To compile the list of stocks, a review is conducted once a year in September, with changes to the ranking and composition implemented in October. The tech industry is the largest sector weighted on the Nikkei index, followed by other industries involved in consumer products, transportation and utilities.

What affects the price of Nikkei 225?

The Nikkei 225 price is affected by the share price of the companies listed on the index. As mentioned before, some stocks hold more weight than others, and an upward or downward trend in the tech sector, for example, will lead to fluctuations in the Nikkei 225 price. Here are some of the most significant components that influence the price of the index:

• News updates – regular updates about the state of the country’s economic and political wellbeing can move the index price in either direction
• Currency rates – a weaker or stronger Japanese yen (JPY) can affect the prices of stocks. When the yen is strong, domestically produced goods tend to become relatively more expensive overseas. Conversely, a weaker yen encourages demand abroad, boosting the Nikkei 225 stock
• Economic events – as a major index in the Japanese stock exchange, changes in the country’s monetary and fiscal policies that relate to inflation, interest rates, unemployment rate, and the number of new jobs would have an impact on Nikkei stocks
• Natural disasters – Japan has a history of natural disasters that include earthquakes and typhoon occurrences. The propensity for such incidents can impact the Nikkei index negatively when they occur
• Earning reports – when stocks that form part of the index release their quarterly performance reports, the largest weighted companies impact the Nikkei 225 price

Why do you trade the Nikkei 225?

The Nikkei 225 is a popular market to trade because of its deep liquidity and low spreads. You’re also able to get exposure to an entire economy or sector with just a single position.

Since the Nikkei index follows the Japanese economy closely, you can monitor the economic and political climate of the country to predict how the index will move.

For example, you can take a position on the Nikkei index based on the direction that the Japanese yen moves. Since the yen and the Nikkei index have an inverse relationship, when the currency appreciates in value, the Nikkei price will take a hit. Conversely, if the JPY falls, the Nikkei 225 stock price tends to go up.

Most European traders seek to diversify their portfolio, and the Nikkei 225 tends to be the preferred outlet because the Japanese economy is one of the biggest across the globe.

Diversification can come in the form of an investment into Nikkei-linked ETFs or individual Nikkei shares, which you can also trade on. You’ll also trade the Nikkei 225 directly with us via our Japan 225 offering. Our offering tracks the Nikkei index, enabling you to speculate on the direction of the market price.

Trade the Nikkei 225 via our Japan 225 index offering

How to trade or invest in the Nikkei 225

1. Choose whether you want to trade or invest
2. Open a live account or practise on a demo
3. Take steps to manage your risk
4. Place your deal and monitor your position

You can trade or invest in the Nikkei 225 via our Japan 225 offering. Trading enables you to speculate on the Japan 225’s price rise or fall, without taking outright ownership of the underlying asset.

When you invest with us, you’ll buy Nikkei 225-linked ETFs and stocks, taking ownership of them outright, with the aim of making a profit from that purchase in the long-term.

Trade the Nikkei 225 price directly

The only way to trade on the Nikkei 225 price directly with us is through our Japan 225 index. You’ll choose between spread bets or CFDs to take a position, and your profit or loss will depend on the outcome of your prediction.

With spread bets, you’ll trade the Japan 225 index by betting a certain amount per point movement in the underlying’s price. Alternatively, you can use CFDs to buy or sell contracts to exchange the price difference of the Japan 225 between the opening and closing position.

You can trade this on the spot price, which is closest to the underlying price with low spreads, but includes overnight fees. Alternatively, you’ll trade via futures which have wider spreads but no overnight fees using our spread betting or CFD trading account.

Trade or invest in Nikkei 225 ETFs

You can also track the price of the index through Nikkei-linked ETFs. These funds won’t mirror the Nikkei price directly, and instead will be linked to the ETF’s net asset value. However, the price will rise and fall in line with the Nikkei.

This is a suitable way for long-term investors to buy and hold their assets using our share dealing account. You can also trade ETFs with spread bets or CFDs, but this offers lower liquidity and larger spreads than trading the Japan 225 directly.

Trade or invest in individual Nikkei 225 stocks

Another way of getting exposure is trading or investing in individual Nikkei stocks, such as car manufacturers Toyota and Nissan or electronics producers Sony and Panasonic.

You’ll buy and hold the actual stock in a Japan 225-listed company using our share dealing account. Alternatively, you’ll trade the stock, speculating on Japan 225-listed stock price movements using spread bets or CFDs without owning the underlying asset.

Nikkei 225 summed up

• The Nikkei 225 is a stock market that lists the 225 largest companies based in Japan
• A myriad of factors affect the Nikkei 225 price such as world events, natural disasters, news updates, wars, economic and political instability
• Traders and investors get exposure to the Nikkei 225 because of its liquidity, and they’re able to take a position of an entire sector with one position
• With us, you’ll trade the Nikkei 225 directly via our Japan 225 offering using spread bets or CFDs to speculate on the spot index, forwards, options, ETFs and shares
• Alternatively, you’ll use our share dealing account to invest in Nikkei 225-listed stocks and related ETFs