Trading the CAC 40: in brief
- The CAC 40 index is the major stock market index on the French stock exchange Euronext Paris.
- The CAC 40 is made up of the 40 French companies with the highest market capitalisation
- You can buy and sell CAC 40 stocks using a securities account
- You can also trade the CAC 40 with ETFs or CFDs
- Trading the CAC 40 requires technical and fundamental analysis.
Market sentiment: Of course, this indicator is crucial because the investment climate and the general sentiment of traders will have a considerable impact on the evolution and trends of the French market and therefore the CAC 40.
Micro-economic indicators: Then there are the micro-economic indicators with some important aspects to consider in your fundamental analysis such as the periods of publication of the financial results of companies, annual or quarterly, the financial analysis of the shares of the companies that have an important weight in the index and other elements of this kind that will have an influence on the valuation of this stock market index.
The weighting of the companies: As mentioned above, in order to analyse the CAC 40 stock market index, you must be able to follow the stocks that make it up and, in particular, the evolution of the share price of the companies with the highest weighting, which will of course have a greater impact than the others.
Monetary policy: The value of the euro against other currencies on the foreign exchange market will of course have a direct impact on the profitability of French companies as it will influence their export competitiveness and the cost of their imports. The monetary policy of the European Central Bank or ECB will therefore be followed with great interest. The ECB can influence the various asset classes and its decisions are often reflected in the value of the euro and the CAC.
The foreign exchange market: As we have just said, the value of the euro against other market currencies will have an influence on the competitiveness and profitability of European and therefore French companies. It will therefore be necessary to keep a close eye on the currency market and to monitor fluctuations in the euro-dollar parity.
Other stock markets: The evolution of the CAC 40 stock index is also influenced by the other world financial markets. There is indeed a correlation between the various international stock exchanges and a sectoral crisis affecting one country can thus have repercussions on the French market and therefore on the CAC 40 index.
Trade conflicts: Finally, it goes without saying that France's economic and trade policy and possible trade wars with other countries should be closely monitored in this analysis. Protectionist measures or an increase in customs tariffs may indeed penalise CAC 40 listed companies.
Stock trading is the most common method of investing in the CAC 40. Investors buy stocks from companies listed in the index in the hope that their price will rise, allowing them to make a profit by selling them at a higher price. In addition, investors may receive dividends from the companies in which they have invested, which is an added benefit.
Trading stocks on the CAC 40 involves the direct buying and selling of stocks from companies included in the index. Investors can select specific companies based on their fundamental and technical analysis, then buy stocks in the hope that their value will rise.
In addition to potential capital gains, investors can also receive regular dividends from the companies in which they have invested, an added benefit of this longer-term investment method.
Trading CAC 40 futures allows traders to buy or sell contracts at a future date at a pre-determined price. These contracts are based on the index itself, which means that traders do not actually own stocks in the individual companies.
This method is often used for short-term trading, with transactions taking place over a period of a few days or weeks. Futures offer traders the opportunity to profit from directional movements in the index without having to buy or sell individual stocks.
Contracts for Difference (CFDs) allow traders to speculate on the rise or fall of the CAC 40 index without actually owning the underlying assets. CFDs offer significant flexibility, allowing traders to take long or short positions in the index according to their market expectations.
This method is often used in the short term to take advantage of daily price fluctuations. CFDs can be traded on a leveraged basis, which means that traders can potentially make larger gains, but this also entails an increased risk of loss.
Exchange Traded Funds (ETFs) are exchange-traded funds that track the performance of an index or basket of stocks. CAC 40 ETFs allow investors to invest in a diversified portfolio of CAC 40 stocks with a single holding. This provides instant exposure to the entire index, which is suitable for investors seeking a more passive or diversified approach.
ETFs can be traded like ordinary stocks on stock exchanges, offering high liquidity and generally low fees. This method is often preferred by long-term investors looking to replicate the overall performance of the CAC 40.
Let us initially examine the major factors of the CAC 40 Index that you should know to be able to analyse this index correctly.
The CAC 40 is a French stock market Index which, as its name suggests, is composed of the top 40 French companies quoted on the Paris Euronext stock market. This index is therefore part of one of the leaders of the European financial marketplaces, Euronext, and alone represents over 80% of the French financial markets.
The companies of which the CAC 40 stock market index is composed are selected from among the top 100 French companies from different activity sectors that represent as objectively as possible the state and the health of the French economy.
From a historical point of view, we would note that the CAC 40 stock market index was created on the 31 December 1987 when its initial quote was for 1,000 points. It was the ‘Compagnie des Agents de Change’, hence the initials CAC, that created this index following the crash of 1987. However since then things have changed. The initials now represent the name ‘Cotation Assistée en Continu’ simply because the rate for this index is updated every 15 seconds during the opening hours from Monday to Friday, 9 a.m. to 5.30 p.m.
Of course, the list of companies represented on the CAC 40 Index changes over time, as with other international stock market indices. Certain companies exit this index and others with a higher stock market capital take their place.
However, certain particularly solid companies have been included in the CAC 40 since it was first created. These are as follows: Accor, Air Liquide, Carrefour, Danone, Lafarge-Holcim, l’Oreal, LVMH, Michelin, Saint Gobain, Sanofi, Société Générale and Vivendi. It should also be noted that since its creation 32 years ago, 94 French companies have at one time or another been included in this index.
Understanding the operation of the CAC 40 and its composition is clearly very important but it is also necessary to know how its rate is calculated. This is what we shall now explain.
To understand this method of calculation, it should first be remembered that in December 2003 the CAC 40 adopted a floating stock market capital calculation method that takes into account the number of shares available for purchase on the market by the quoted company. This modified method of calculation aims to be close to that used already for the major international stock market indices.
To summarise, the calculation of the CAC 40 rate is based on the stock market capital of the companies of which it is composed and it is obtained through the multiplication of the number of shares of each company on the market by the price of the shares.
Concerning the management of the CAC 40 index, notably the updates of the assets of which it is composed, it is the scientific Board of the Euronext stock market indices, composed of a number of independent experts of these stock market indices, that is responsible for these revisions and decides therefore which companies enter or exit this index with the aim of providing a fair representation. This board of eight independent experts from universities, industry and analysts meet every three months, on the third Friday in March, June, September, and December. When making their decisions they take into account the transaction volume of the company’s shares, the representation in the activity sectors on a national level, and the fluidity and regular trading of the assets.
The second analysis you should use to study the growth possibilities of the CAC 40 index is the technical analysis.
This is based uniquely on the study of this index’s charts and its current and historical rates. To complete a comprehensive technical analysis it is however important to have some understanding of the methodology and principal technical trend and volatility indicators as follows:
The more indicators you use the more pertinent and precise your analyses will be. Of course, for this you should pay careful attention to the charts you use for this analysis and in particular favour those that can be personalised to your requirements. These charts, available from online brokers, will actually enable you to generate different displays of curves, timelines and indicators for a clearer visibility. Then you simply have to interpret the movements that you observe on your monitor to obtain the required signals.
We would nonetheless draw your attention to the fact that this technical analysis should never be used alone, always with an accompanying comprehensive fundamental analysis, whatever the asset you are studying.
The price of the CAC 40 stock market index can be viewed live from many websites specializing in the stock market and you can also find real-time graphs of this value on your broker's trading platform with valuable and customizable technical indicators . Note that the CAC 40 shares are listed on the Euronext Paris market.
While it is of course possible to trade and even buy stocks that are listed on the CAC 40 stock index, know that it is also possible to speculate on this index directly. The price of the CAC 40 is a value on which you can speculate upwards or downwards through CFDs or contracts on the difference, accessible from online trading platforms.
As we have seen, the price of the CAC 40 is influenced above all by the evolution of the price of the shares that make it up and more specifically still by the price of the shares of listed companies with the largest capitalization. We can also anticipate its variations by studying the economic health of France in general with the indicators published each month or even by following the decisions of the ECB which influence the euro.
