Everything you need to know about the CAC40 index
If you're looking to diversify your investment portfolio quickly, index trading is ideal. You can use it to speculate on groups of major companies in a given country, gaining cross-sector exposure in one simple move.
The CAC 40 offers one such opportunity for traders. Representing France, one of the largest economies in Europe and the world, this index is widely traded and highly liquid as a result. And like any index, learning its dynamics can improve your chances of trading it profitably.
We can help you do just that. Read our beginner's guide for answers to all the following:
What is the CAC 40 index?
The CAC 40 is considered the benchmark index for France, tracking the 40 largest and most actively traded stocks on the Euronext Paris stock market. It's also seen as a good indicator of the wider European economy due to France's sizeable contribution to it.
The acronym CAC is short for Cotation Assistée en Continu, which translates as Continuous Assisted Quotation. It originally meant Compagnie des Agents de Change in representation of a long-standing group of brokers operating on the Paris stock exchange. Its CFD ticker is FRA40.
Part of a wider index family, the CAC 40 was introduced on June 15th, 1988. It's grown to hold a market capitalisation of €1.89 billion as of September 30th, 2022.
CAC 40 companies
Individual CAC 40 stocks hail from a broad range of sectors. Rather than being weighted equally, certain sectors and stocks are given greater weighting to reflect their economic contribution. Weighting determinants include number of shares, free-float factor and capping factor.
Sectors with the highest current weighting include consumer discretionary (28.5%), industrials (21.3%) and healthcare (10.8%). Energy and financials are also well represented.
The largest individual constituent is LVMH, commanding an 11.73% weighting. Other high-profile, high-weighted companies include:
The index's top 10 holdings account for 58.1% of its total market capitalisation.
How is the CAC 40 index calculated?
The CAC 40 is a free-float, market-capitalisation-weighted index. Its make-up is overseen by Le Conseil Scientifique in partnership with the market regulator Autorité des Marchés Financiers and the French treasury department.
Company stocks need to meet certain criteria to gain and maintain index listing. They must:
- Be listed on the Euronext Paris exchange
- Be based primarily in France
- Have sufficient market capitalisation and trading volumes
- Trade in Euros
- Trade continuously
Le Conseil Scientifique reviews the index's composition quarterly to ensure it stays representative of the underlying market. Companies may gain or lose listing based on comparative performance, though a buffer exists between positions 36-45 to reduce index volatility. Any changes come into effect after market close on the third Friday of March, June, September and December.
The CAC 40 price is then based on the number of shares included in the index of each constituent, multiplied by the last closing price, and then divided by a bespoke index divisor. This divisor is dynamic, based on the initial capitalisation of the index and its base level.
What affects the CAC 40 share price?
Like all indexes, the CAC 40 can be influenced by a range of factors, with some nuances unique to this asset:
- Constituent performance: Changes in the performance of quoted companies, such as capitalisation or turnover, will influence the index to varying degrees based on their weighting. It's worth checking earnings reports as well as monitoring major news stories. Similarly, broader trends affecting the CAC 40's dominant sectors will drive its price movements.
- Domestic news: The CAC 40 is considered representative of France's economy. As such, GDP, inflation, and employment rates can all influence its performance. Political uncertainty – such as 2022's close-run, controversial presidential election – may also impact investor confidence. Societal unrest in the form of protests and worker strikes isn't uncommon or unrelated either.
- World events: France doesn't have a central bank and uses the Euro, so tracking the monetary policy set by the European Central Bank (ECB) is crucial. The CAC 40 isn't immune to broader world events either, such as global financial crises and the COVID-19 pandemic.
How to trade the CAC 40 index
You can choose to invest in the stocks of individual CAC 40 companies, if you wish, and own the underlying assets. But researching, monitoring and trading individual stocks can take more work than index trading, especially if you want to gain the same market exposure that the CAC 40 offers.
If investing in one index rather than several – or even 40 – stocks suits you better, you can do this through contracts for difference (CFDs). When buying or selling a CFD, you're entering an agreement with a broker to pay the difference between the opening and closing price of the index. You'll enjoy full exposure to the CAC 40 and its constituents without owning the underlying asset. You can take both long or short positions, allowing you to take advantage of bullish and bearish performance.
Another option in your trading arsenal is spread betting. This instrument requires you to speculate on the direction of the market, rather than differences in opening and closing prices.
When does the CAC 40 close?
The CAC 40's main trading hours are between 08:00 and 16:30 UTC, mirroring the stock exchange its constituents are listed on. But with FXCM, you can trade it from 07:00 until 21:00 UTC daily with no breaks, offering more diverse opportunities.
How much do you need to trade the CAC 40?
Investing in any index through CFDs or spread betting works on leverage, so you can gain greater exposure with smaller positions.
The CAC 40 index specifically has a minimum value of €0.10 per point and a target spread of 1 pip/point. Note that your per-point value may be different if your trading account is denominated in a different currency.
Benefits of trading the CAC 40 index?
There are several reasons to consider index trading and the CAC 40 specifically:
- Portfolio diversification: This index offers quick exposure to France's 40 premier companies in one convenient asset. You'll gain access to multiple prominent sectors, from healthcare to energy, while keeping protected against the price swings of individual stocks.
- Liquidity: The CAC 40 index is a widely popular asset. It enjoys consistently high trading volumes and liquidity, making its shares easy to buy, sell and speculate on.
- News coverage: As the number one index in the world's 7th largest economy – and the 2nd largest in the EU – the CAC 40 commands high levels of news coverage. This allows for easier, more regular analysis of its potential movements.
Is trading the CAC 40 index right for everyone?
There's no such thing as a perfect asset, so it's wise to consider any potential downsides too.
Index trading offers no control over the individual companies you're investing in. Focusing on the CAC 40 specifically, this means you're restricted to larger-cap companies selected by Le Conseil Scientifique. There are other indexes within the CAC family which allow more constituents.
It's crucial to consider the risk factors relevant to the CAC 40 too. As France uses a currency controlled by an external central bank, the ECB, its monetary policy can be impacted by events in other EU countries. Staying abreast of relevant news on the continent can help with projecting the index's direction.
If trading the index through CFDs or spread betting, meanwhile, you should understand the risks of leveraged products. Leverage can amplify losses as well as profits. Make sure you're comfortable with this risk should the market not perform how you expect.
Start trading the CAC 40 with FXCM
As the foremost index in a leading global economy, the CAC 40 has the potential to make a strong addition to your trading strategy. If you agree, it's simple to start trading it with FXCM. We offer excellent spreads coupled with zero commissions, plus a host of tools and resources to help build your trading knowledge.
- Sign up for a free FXCM account or test your skills first with a demo account.
- Download your ideal trading platform: MetaTrader4 or Trading Station. Our guide to choosing a trading platform can help here.
- Add funds to your account to begin trading. Trading with leverage allows you to get started with smaller deposits.
- Make your first trade of the CAC 40 or many other in-demand assets. You can learn the basics from our guide to CFD trading.
- Keep learning. Our trading education hub offers tools, webinars and lots of advice to help strengthen your foundation of knowledge.
If you're ready to get started with the CAC 40, visit our dedicated quotes page. View a real-time CAC 40 performance graph and consider your move.
FXCM Research Team
FXCM Research Team consists of a number of FXCM's Market and Product Specialists.
Articles published by FXCM Research Team generally have numerous contributors and aim to provide general Educational and Informative content on Market News and Products.