How to trade or invest in the ASX 200
The ASX 200 is a stock market index which represents 200 large cap companies listed on the Australian Stock Exchange. Learn how to take a position on the ASX 200 – through trading or investing – as well as what moves the index’s price.
How to trade or invest in the ASX 200
Trading and investing are two different things, but both enable you to get exposure to the price movements of the ASX 200.
|Trading the ASX 200||Investing in the ASX 200|
|Ways to trade||CFDs||Buying ETFs or shares outright|
|Market hours (AEDT)||9.50am Monday - 8am Saturday||10am - 4pm, Monday to Friday|
|Initial capital required||0.5% of trade size||100% of purchase price|
|Timeframe||Shorter term||Longer term|
|Liquidity||Higher liquidity offered by trading the index than investing in ETFs|
Trading the ASX 200
Trading the ASX 200 is made possible through financial derivatives such as CFDs . A CFD will enable you to speculate on the ASX 200 rising or falling because it mirrors the price of the underlying.
When you trade the ASX 200 with CFDs, you’ll be opening positions with leverage. This means you can get much larger market exposure while only having to commit an initial deposit. But, remember that while leverage can maximise your profits, it can also amplify your losses.
Investing in the ASX 200
You can’t directly invest in the ASX 200 because it is an index, rather than a tangible asset like oil or stocks. However, you can get exposure to its price by investing directly in ASX 200 ETFs or individually-listed ASX 200 shares.
When investing in shares of ASX-200 companies or ETFs, you’ll need to commit the full value of the position up front because you’ll be taking direct ownership of the shares. One benefit of this is that you could receive dividend payments (if made).
With IG, you cannot invest directly into shares or ETFs. You can however trade them via CFDs.
Ways to trade the ASX 200
Trading cash indices means that you’re dealing at the current price of the ASX 200 – known as the cash price or the spot price. Cash indices are popular with short-term traders because they offer some of our tightest spreads. However, you will be charged an overnight funding fee if you keep your cash indices positions open at the end of each trading day.
Trading index futures means you are agreeing to trade the ASX 200 for a set price, at a predetermined future date. Index futures are popular among traders with a long-term outlook because overnight funding charges are included in the spread. This means that although the initial spread is wider, you won’t incur multiple overnight funding charges.
Ways to invest in the ASX 200
ASX 200 ETFs
When you invest in an ASX 200 ETF , you’re buying shares in a fund that tracks the performance of the ASX 200. Investing in ETFs enables you to get exposure to the ASX 200 with a single transaction, rather than buying a range of individual constituent shares. You might also receive dividends if you’re investing in an income ETF.
ASX 200 shares
When you invest directly in ASX 200 stocks, you receive an ownership stake in the underlying company. This means that you might be granted voting rights, and you’ll also receive dividends if the company pays them. To get effective exposure to the ASX 200 through individual shares, you’ll need to hold a basket of ASX 200 shares from a range of different sectors.
What moves the price of the ASX 200?
Economic events such as the market reaction to the coronavirus pandemic can affect the price of the ASX 200 – particularly if lockdowns on immigration or exports are put into effect.
Breaking news stories can have an effect on the ASX 200’s value. The extent of the impact will depend on the nature of the reports, but any domestic Australian news that will affect company performance could influence the price of the ASX 200.
The earnings reports of individual companies listed on the ASX 200 can have a large impact on the price of the index. Since it is a market-capitalisation weighted index, the earnings reports of higher market-cap companies will tend to have the biggest effect on its value.
Interest rate decisions
Interest rate decisions by the Reserve Bank of Australia often cause fluctuations in the price of the ASX 200. Higher interest rates reduce borrowing and can therefore affect earnings growth. As a result, stock prices tend to fall – which will cause a reciprocal decrease in the price of the ASX 200.
Strength of AUD
The strength of the Australian dollar will have an effect on the price of the ASX 200. If AUD is stronger compared to other currencies on the forex market, the index will likely rise in value, and if AUD is weaker, it will likely fall.
Price of commodities
Since the strength of AUD is tied to the value of Australia’s exports, the value of commodity metals such as copper or gold will affect the price of the ASX 200 – either positively or negatively – depending on whether the price for these commodities is increasing or decreasing.
ASX 200 trading strategies and tips
- Choose your trading style: There are many trading styles to choose from, including scalping , day trading and swing trading. The one that’s right for you will depend on your individual preferences
- Study charts and price action: Chart analysis will help you to gauge previous market sentiment, while price action helps you to make an assessment about what a market might do next
- Carry out your own technical analysis: This involves using indicators to identify patterns and trends on price charts. A wide-range of indicators are available on the IG trading platform
- ASX trading signals: IG’s third-party trading signals can serve as a foundation for a position, but they should always be confirmed with your own analysis
- Set ASX trading alerts: These notify you when certain conditions are met – for example, when the ASX 200’s price increases by a certain amount of points
- Follow the news: Reports and breaking announcements about the economy or individual companies can help form the basis of your trading decisions. Many traders pay particular attention to company earnings reports and interest rate changes
ASX 200 overview
The ASX 200 is the benchmark stock index for the Australian market. It includes 200 large-cap Australian stocks from a range of different sectors, including finance, healthcare, industry, energy and manufacturing.
How is the ASX 200 calculated?
The ASX 200 is a market-capitalisation weighted index, which means that the performance of companies with a larger market cap will have a greater influence over the index’s price.
What are the ASX 200 trading hours?
IG offers 24-hour CFD trading on the ASX 200 from Monday to 10pm Friday (UK time).
|CFD trading open (UK time)||CFD trading close (UK time)|
Aside from indices trading, IG also offers share CFDs on a range of ASX-listed shares and ETFs – meaning you can trade shares within the ASX. Our dealing hours on ASX 200-listed shares can be seen below:
|Share trading open (AEDT)||Share trading close (AEDT)|
We also offer shares from many different locations around the world including the US – with extended hours on over 70 US shares – as well as the UK, Asia and Europe.
You can trade the ASX 200 with CFDs, which are a financial derivative that mirror the underlying market price of the ASX 200 index. CFDs can be used to go long and speculate on the price of the ASX 200 rising, or you can go short and speculate on the price falling.
They are also an effective way to hedge risk in any of your existing ASX 200 positions, such as if you have directly invested in ASX 200 shares or an ASX 200 ETF.
For example, if you thought that one of your share investments was going to decline in value for a short time, you could open a short CFD position. In a hedge, the profits on your short CFD position would offset a proportion of the losses on your share investment if the market dropped.
Before you trade the ASX 200, you should carry out your own fundamental analysis of the constituent companies’ performance, the government’s economic policy and current economic conditions, and technical analysis of the index’s previous price movements.
The ASX 200’s constituents are the 200 largest companies that are listed on the Australian Stock Exchange. Because the largest companies are always changing, the companies which make up the ASX 200 are constantly reviewed, and the most recent composition of the ASX 200 is posted every night on the ASX website.
Develop your knowledge of financial markets
Find out more about a range of markets and test yourself with IG Academy’s online courses.
1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 Trade in your share dealing account three or more times in the previous month to qualify for our best commission rates. Please note published rates are valid up to £25,000 notional value. See our full list of share dealing charges and fees.