The Nikkei 225, also known as the Japan 225 with some spread betting companies, is the major index of the Tokyo Stock Exchange in Japan. In contrast to many of the other indices, this one has been around for more than 60 years and is well-established. As Japan’s economy is the third largest in the world, behind only the United States and China, the Nikkei 225 provides a good reference for the state of the world economy.
Considering the amount of market penetration that Japan has had in the last few decades, it is likely that you would recognize more than a few of the names of companies making up this index. For one Japan is home to some of the world’s leading consumer electronics brands, such as Nintendo, as well as three of its major car manufacturers – namely; Nissan, Honda and Toyota. On the technological front, Niko and Canon are key players in imaging and semiconductor production equipment, while 5 of the world’s top 20 silicon chip manufacturers also happen to be Japanese – Toshiba, Renasas, Elpida, Sony and Panasonic. Japan is also known to be particularly strong in the shipping and steel industries as well as process automation, chemicals and textiles. As the name suggests, there are 225 companies included in the Nikkei 225 index, and they are the largest companies on the stock exchange as measured by market capitalization and liquidity.
The Nikkei 225 has been very volatile over the past few years, and although it is between 8000 and 9000 points at the moment, it has seen nearly as much as 40,000 points in the past. The economic recession in the world economy has hit it very hard, and it also dropped more than 1000 points in March 2011 following the earthquake and tsunami of the Japanese coast.
When you look around you, you’re likely looking at many of the products of the Japanese economy. Honda produce cars, but also many other types of powered equipment; Toyota cars are particularly to the forefront with the Prius being a favourite amongst environmentalists; and Panasonic, Sharp, and Sony are just a few of the names of equipment which you probably have in your house.
When you spread bet, you may or may not find your spread betting company willing to quote you prices when the market has closed. If they do, often they will add some points to the spread in order to cover the uncertainty which they are unable to hedge when they cannot deal in the financial markets. Because Asia is a very different time zone from where you may live, this can present opportunities or difficulties, depending on your style of spread betting.
So there are similarities to Western market indices because of the markets served, and there are also differences because of the time zones. The unique combination of these may be something that you are attracted to spread betting. What you need to bear in mind is that the index has shown significant volatility in the past, and it is unlikely that this will lessen in the near future.
This makes it of paramount importance that you have a solid trading plan in place before spread betting on the Japan 225, with an established and proven strategy that contains adequate safeguards against major losses. Whenever you are trading on the financial markets, you are well advised to have detailed plans of when you will cut your losses and exit a losing trade, and the Nikkei will punish you if you do not follow through with these plans.
Spread Betting – Nikkei 225
The Nikkei 225 is the major stock index for the third largest financial economy in the world, and reflects a lot of the world economies’ movements. It is also known as the Japan 225, which is the name used by IG Index, where the current quote is 8683.5 – 8691.5 for a rolling daily bet.
If you decide that the index may go up, you can open a “long” bet, sometimes called a “buy” bet, at the higher level of 8691.5. Even though this is a Japanese index, betting takes place in pounds sterling per point (for UK residents), so say you choose to wager £3 per point.
Suppose the index goes up to 8852.9 – 8860.9, and you decide to close your bet and take your profit. The long bet closes at the lower price of 8852.9. You can work out how much you won by multiplying the difference in points by your stake.
The total number of points that you gained is 8852.9-8691.5.
That works out to 161.4 points.
Your stake was £3 per point.
Therefore you gained 161.4 times £3.
Your total gain was £484.20.
Of course, the index might have gone down, which means you would lose some money. When you bet sensibly, according to a plan, you will make sure that you close your losing bet quickly to minimize the losses. Say that the index went down to 8635.8 – 8643.8. Now you must work out how much you lost.
The total number of points you lost is 8691.5-8635.8.
You have lost 55.7 points.
Your original stake was £3.
You can work out your losses by multiplying this by the number of points.
55.7 times £3 is a total of £167.10 that you lost.
When you spread bet, it is as simple to make money on an index going down as it is when it goes up. Going back to the original quote of 8683.5 – 8691.5, say you wanted to bet £5 per point that the index go down. Because you are taking a “short position”, this bet is placed at the lower number of 8683.5.
If all goes well, the index goes down and you win. For example, assume that the quote from your spread betting provider is 8424.2 – 8432.2 when you decided to close your bet and take your winnings. Here is how you can figure out the amount that you won.
The total number of points that you gained is 8683.5-8432.2, the higher or buying number because it was a short bet.
That means the points you gained were 251.3. At a stake of £5 per point, you have won a grand total of £1256.50.
On the other hand, the index might have gone up after you placed your short bet, and you would be facing a losing position. If you closed your bet to cut your losses when the spread betting company was quoting 8729.3 – 8737.3, you would have lost a total of 8737.3-8683.5, which is 53.8 points.
Because your stake was £5 per point, the total amount you lost was £269.
One thing to be aware when trading the Nikkei or Japanese stocks is that the Tokyo Stock Exchange is open from Monday to Friday between 0900 and 1100 and 1230 to 1500 local time, with a brief break in between the two trading sessions. Given that this means that Tokyo is nine hours ahead of GMT, trading real time is for spread traders who don’t mind trading in the night!