What is the CAC40, and what does it mean?
The CAC40 index tracks the performance and volume of the 40 largest stocks on France’s largest stock market, Euronext Paris. The Cotation Assistee en Continuu 40 symbol is a key indicator for the French economy. This index attracts the attention of traders from around Europe and the rest of the world.
Launched with a value of 1000 in 1987, the CAC 40 index is a market capisation weighted index. The index gives greater weighting to the most capitalised companies, much like the German Dax (or the FTSE 100).
About CAC40 constituents
The oil giant Total, BNP Paribas bank operator and Louis Vuitton luxury goods conglomerate LVMH are the largest constituents of this index. Here’s what the CAC40 sector composition looked like as of June 10, 2021.
How often does CAC40 change its companies?
A CAC 40 company’s composition can change each quarter, provided that it is reviewed by an independent steering panel. This is done in order to make sure that the index selections and weightings accurately reflect the underlying markets. Alstom, the French multinational rolling stock manufacturer Alstom was added to this index in September 2020.
How does the CAC 40 work?
The CAC 40 was calculated on a return-price basis. This calculation uses the current number of shares in an index for each constituent multiplied over the closing price. Then, the index divisor is used to divide the result. The initial capitalisation of the index as well as the base level are the basis for the calculation of the divisor.
What does the CAC40 cost mean?
The CAC 40 is a measure of whether the share prices for the index companies are rising or falling. If the CAC 40’s price rises, this means that gains are being experienced by a particular company or group of companies, and the overall index will reflect the increase. However, a falling CAC 40 price means that index companies have a declining price.
CAC 40 ranks are based on the weighted average of shares prices. This means that share price fluctuations of companies with a greater weighting can often have a significant impact on the overall index.
What are the effects of the CAC40 prices?
The CAC 40 market price is affected both by fundamental and technical drivers that are linked to the French and European economic behavior, as well as international factors. European Central Bank monetary policy, as well as foreign exchange rates, economic data releases, commodity prices, can have a notable effect.
Although these drivers might be expected to move an index in a specific direction, there is no guarantee it will happen. Therefore, traders should look at how the various factors influence each other rather than just focusing on one factor. Here are some of the most important things to keep in mind when trading CAC 40.
Monetary Policy and Economic Releases
When the European Central Bank monetary policy remains accommodative and interest rates are low, credit opportunities and general money supply tend to increase. This makes corporate debt easier to obtain and more affordable to service, allowing for growth in business and often driving up stock prices.
Economic data could also have a significant impact on trading decisions. Inflation is a factor that can impact stock indices. This is because it can cause profit margin erosion across different sectors. Also, it is considered a potential risk to longer-term higher rates of interest. Inflation fears led to a 1.3% drop in the broad index on May 20, 2021.
Individual company performance
As we have already mentioned, larger companies are more capable than smaller ones of moving the index. Total is, for example. More capable than Renault to change the CAC 40’s price.
Sociopolitical events
Events such as The Great Recession and Coronavirus Pandemic can all have a significant impact on market demand. As an example, the 2020 pandemic caused a drastic deterioration of manufacturing activity and market need. The CAC40 plummeted 40% in March 2020 from its record low in February.
Average annual returns for the CAC 40
Over the past ten-year period, the CAC 40 has averaged 4.6% annual returns. The CAC 40 average returns represent roughly what managed funds will have earned in profits for investors over the course a year.
Below, you will find the annual returns from 2011 to 2020. Recall that past returns do not guarantee future performance.
C40 market hours
The main trading hours at the CAC 40 range from 09:00 – 17:30 (CET).
You can read more about stock market hours.
How to trade CAC40
There are many ways to trade the CAC40. Most popular are derivatives such CFDs as futures and options as well as ETFs. Each of these instruments allows you to gain exposure to all 50 businesses from one position.
CAC40 CFDs
Contracts of difference (CFDs), derivatives that are priced from the underlying markets, in this instance the CAC40, are called contracts for difference. Because you won’t own the asset, it is possible to speculate on how the index will change in value.
Learn More about CFDs.
CaC 40 futures
Futures contracts can be used to exchange assets at a predetermined price and expiry date. CAC 40 contracts, unlike most futures, don’t include an underlying physical asset. Instead, an Index is just a number representing a collection of stocks.
CAC40 options
CAC40 options are contracts that grant you the right but not obligation to purchase or sell the index at an agreed price on a specified date.
As soon as CAC40 options are available for trade, you would do so using CFDs.
CAC40 stocks & ETFs
ETFs can also be used to trade CAC 40. These are investment instruments that hold a number of stocks, such as the shares of constituents.
Alternativly, stocks on CAC 40 can be traded individually. This allows for the possibility to focus your attention on particular areas.
Learn more about Share trading with us.
How to Shorten the CAC 40
To shorten the CAC 40, you must assume that the index will decline. This can be achieved by selling short CAC 40 contracts or shorting constituent stocks. Or traders might be interested in shorting the CAC40 ETF. Optional options include buying Put options on CAC40 stocks, if you think they are undervalued, and purchasing a Put option to a CAC40ETF.
You can read more about shorting the market.
Can you put money into the CAC 40 in the UK
You can trade derivatives or invest in the CAC 40 directly in the UK using a combination ETFs, mutual funds or index fund.
