Best brokers for trading Japan 225 (Nikkei 225)

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What is the Nikkei 225?

Nikkei 225 Index is the benchmark stock market index of the Japanese equity market. Formed in 1950, the index measures the performance of the 225 largest stocks listed in the Japanese stock exchange. Nihon Keizai Shinbun,  the premier Japanese media group and owner of the UK Financial Times, maintains this index.

The index is price-weighted, just like the DJ Industrials Index. This means the level of share prices dictates its weightings.

According to the latest constituent update, Fast Retailing, owner of Uniqlo, has the largest weighting in the Nikkei 225 Index. Fast Retailing’s stock trades at Y63,000 (approximately USD580)

Nikkei 225 Top 10 Weightings

  1. Fast Retailing
  2. Softbank
  3. Tokyo Electron
  4. Fanuc
  5. KDDI
  6. Daikin
  7. Terumo
  8. Kyocera
  9. Shin-Etsu Chemical
  10. Secom

Source: Nikkei 

How can you trade the Nikkei Index?

If you’re looking to trade the Japan 225 (Nikkei 225), we’ve compiled a list of the best brokers for trading the Nikkei 225. All brokers in this list are authorised and regulated by the FCA. Ensure that you are using the best platforms for trading indices and choose a brokers from our comparison list of the best brokers for trading the Nikkei. There are multiple financial products derived from the underlying Japanese Nikkei Index that you can trade with, including:

Realted information: Read the GMG Guide on Index Trading.

For UK-based investors, you can gain exposure to the Nikkei via the Nikkei 225 ETF (ticker: CNKY). This ETF has about Y25 billion in AUM. ETFs are gaining in popularity because you can trade them like stocks, unlike futures or options where there are rollover costs and expiry dates.

On index futures, they usually expire on March, June, September, and December.

What is the attraction of Japanese Nikkei Index?

The Japanese Nikkei Index is one of the international stock benchmarks. The index is attractive to investors and traders alike because:

  • N225 stocks are global and commercially competitive
  • N225 offers good liquidity – as some of these stocks are huge (e.g. Softbank, Toyota, and Sony)
  • N225 offers a good exposure to leading industrial companies such as Toyota and Fanuc.

Many Japanese companies are export oriented and they benefit from a rise in global economic growth.

What drives the Nikkei 225 Index?

Stock markets are often driven by a wide variety of factors. For the Japanese stock market, there are a few factors worth watching. The primary one is stimulus.

In 2012, the Japanese government – and the central bank – implemented a huge stimulus program dubbed QQE. This kicked the  Japanese Yen down and drove the local stock market up. More recently, the government said it will implement another $120 billion stimulus. This may create upward pressure on security prices.

Meanwhile, other important factors include:

  • Monetary factors (e.g., Quantitative Easing, yield curve etc)
  • Technical factors (e.g., new highs or lows)
  • Earning factors (e.g., profitability and earnings momentum)
  • Natural disasters (e.g., earthquakes and tsunami)

A 7-Point Guide to trading Asian stock indices

Trading Asian stock indices has always a lure for many aspiring traders. In the past, many western observers referred to Japan/HK as the ‘Far East’. But in these days of instant electronic trading, investing in Asian markets has never been easier. But there are some things you may need to watch out for.

  1. Understand that ‘Asia’ is a very big continent. You have to know which countries you want to invest in. At the minimum, know whether the Asian country you are interested in is a developed, developing or a frontier economy. There are more than 35 countries in Asia, stretching from Japan to Pakistan. So there are a lot of cycles overlapping one another. Other things to watch out for include:
    • Economic cycles
    • Currency trends (managed, pegged, or free float?) – very important
    • Political trends and elections
    • Sector niche
  2. Understand your requirements for trading Asian stocks. Are you in just to get a ‘kick’? Or do you invest for the long term? Are dividends important? This will dictate what you invest in.
  3. Anticipate the market catalysts for buying in (or selling out). In many Asian markets, an election can have a massive positive impact on the local stock market. Modi in India is one example. Shinzo Abe of Japan is another. They bring in new policies that often rejuvenate the economy (at least for a while).
  4. Research what type of exposure available. Not all Asian markets are available to foreign investors. China used to be a totally closed market but is now gradually opening up. Still, there is a limit. Other countries are more open, such as Singapore and Hong Kong. Therefore, if you are preparing to invest understand how you wish to carry out your transactions. Can you invest locally or through a fund? Can you buy Asian stocks from where you are?
  5. Identify the sector niche. Not all countries can be competitive in every sector. For Singapore/HK, the bigger sectors are property, banks, insurance etc. For Indonesia and Australia, resource stocks are better. In Korea, tech/chip stocks are worth watching. So before you invest with MSCI country ETFs or indices, you have to know what the constituents are. Check and see if these stocks are what you want to hold.
  6. Examine the risk and reward. Asian markets are very attractive to many investors simply because of the higher growth rates there. China is growing at 5-6%; so is India. Countries like Vietnam, Philippines, Indonesia all showing promising trends one way or another. However, not all is rosy. You can lose serious amount of money if you overpay for securities. So are you buying blue-chip Asian stocks or are you buying growth stocks? Different type of stocks carry different kind of risks.
  7. Commit capital but go slow initially. Especially if you’re unsure what or how to trade Asian markets. Drip feed capital into Asian funds or ETFs just to experience the pricing behaviour.

Alternative Indices For Japan 225 (Nikkei 225) Index Trading

You can read about the major indices in our guide to the best indices for index trading.

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