The Australian Securities Exchange (ASX 200 or AUS200) index is a market capitalization-weighted index comprised of stocks listed on the Australian Securities Exchange, one of the top 15 exchange groups globally, with an average daily volume of $4.685 billion. The index is comprised entirely of companies that are traded on the Australian Securities Exchange.
The AUS200 is available on the eToro platform as an asset. It can seem overwhelming especially for newbie traders so make sure that you read the post below to get all of the answers you need about investing on this index.
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History of ASX 200
The S&P/ASX 200 replaced the All Ordinaries to become the benchmark index for Australia. It was launched April 3rd, 2000. The index is used to create index products and has a high representation in the Australian stock market. This gives it a duty to keep stock indices accurate and provide institutional investors with high liquidity.
The S&P/ASX 200 has 180 large companies and 20 small companies that are regularly re-balanced quarterly to maintain eligibility criteria. For the index, the top 50% of these large companies account for around 94% of its total value.
The ASX 200 (AUS200) is a float-adjusted index, which means that the total numerical contribution to the index is proportional to the value of the underlying stock. Due to the significant degree of volatility in the shares that comprise the ASX 200 (AUS200) index, the index's number does not always revert to 200. Standard & Poor's, an American financial services corporation, rebalance the index quarterly to represent the market. The index computation would calculate using a technique known as Divisor, which ensures that if any member of the index raises its market capitalization, the value of the ASX 200 (AUS200) index remains constant.
Factors to Consider When Trading ASX 200
When it comes to commodity prices, the value of Australia's exports is linked to the strength of the AUD; the value of commodities like copper/ gold will affect the price of the ASX 200, either favorably or adversely.
Through media, unexpected news reports can affect the ASX 200's value. The impact varies based on the stories' content. Domestic Australian news that impacts company performance may influence the ASX 200's price.
Individual company earnings releases on the ASX 200 can significantly impact the index's price. Since it is a market capitalization-weighted index, earnings announcements from larger businesses tend to have the most impact on the index's value.
Economic occurrences like a global pandemic such as the Coronavirus 19 (COVID-19) can impact the ASX 200 market response, primarily if immigration or export controls are implemented.
The strength of the Australian dollar will impact the ASX 200. If the Australian dollar is more vital than other currencies in the forex market, the index will likely rise or fall. The Australian Reserve Bank's interest rate decisions may impact the ASX 200's price.
How to Trade ASX 200?
ASX 200 trading is through financial derivatives such as CFDs. A CFD will allow traders to speculate on the rise of the ASX 200 or fall as it reflects the underlying price and will open positions with leverage. Cash index CFDs trading with short-term traders offer some of the tightest spreads and are charge an overnight funding fee if traders keep their places open in cash indices at the end of each day of trade.
Index CFD futures have a long-term outlook because overnight fund charges include in the spread. It means that the initial spreading is a lot more diverse overall, and there won't be many overnight funding charges. In addition, traders can gain exposure to its price by directly investing in ASX 200 ETFs or individually listed ASX 200 shares allowing traders to expose the ASX 200 with a single transaction instead of buying a set of individual stocks. It can also receive dividends if traders invest in an income ETF.
Trading ASX 200 via ETFs
One of the ways to trade ASX 200 is through Exchange-Traded Fund, which is also known as ETFs. This kind of derivative enables traders to diversify since it consists of pooled securities brought and sold as a mixture of investment types at a specific price. Trading AUS200 through this index will provide exposure to an entire sector across Australia.
Trading ASX 200 via Futures
Another of the ways to trade in Australia's top 200 companies is through futures, a financial contract wherein an underlying asset will be purchased or sold at a predetermined time and cost. Futures is another way for investors to profit by hedging risk since this financial instrument is purely speculative.
Trading ASX 200 via CFDs
Investing in ASX through contracts for difference is one of the most popular ways to trade such an index. The trader benefits from this approach in the form of profit even if ownership is not transferred, and it also allows the trader to profit independent of price fluctuations in the index.
Trading ASX 200 CFDs with eToro
The ASX200 follows 200 firms that account for roughly 80% of Australia's entire stock market capitalization. The ASX200 listed companies, including Qantas Airways, Rio Tinto, and the National Australia Bank, are ranked through market capitalization. Trading platforms like eToro can help you get started with your trading or investing journey.
The eToro platform is a leading social trading platform where stocks and cryptocurrencies are invested and traded. Through this platform, the ASX200 can also be exchanged just like any other blue-chip stock index as it provides an impressive feature set that is user-friendly. However, the AXS200 is only open to firms listed on the Australian Stock Exchange (ASX) and meets specific liquidity requirements. The index's daily fluctuations measured are in points or percentages. Every few months, the index performs a "rebalancing" feature to include new companies that match the criteria and eliminate those that no longer qualify.
How to Trade ASX 200 in eToro?
- Create an account on eToro or log-in your account for existing users.
- Click "Discover".
- Select "Indices".
- Look for "AUS200".
- Select BUY or SELL.
- Key in your desired amount to invest or the number of AUS200 units you want to trade.
- Review and set the stop loss, leverage, and take profit parameters.
- Select "Open Trade".
Is It Wise to Invest in ASX 200?
Investing in the ASX200 is usually done through an index fund, which is a relatively safe way to go. Because the ASX 200 is an index rather than a physical product like oil or equities, you can't invest directly in it. However, leveraged CFDs, which are significantly riskier, can be used to trade stock market indices. When trading CFD indices, it wagers on the index's price movement; this means that regardless matter whether the index is rising or declining, you can profit. It makes it a popular trading tool. Keep in mind though that because both gains and losses are increased through leverage, it's considered a high-risk product.
Because you'll be taking direct ownership of the shares when investing in ASX-200 stocks or ETFs, you'll need to commit the absolute value of the position upfront. One advantage is that investors may be eligible for dividend payments and acquire a lot more market exposure with just a small initial investment. It'll be using leverage to open spots.
Ready to trade ASX 200 with eToro?
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Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
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