France 40 Index Trading Guide: How to Trade the CAC 40

The CAC 40 is one of the major global stock market indices often mentioned in business news. It is also a good representative of the wider economic health of Europe due to France's sizeable contribution to it.

This article explains different aspects of the CAC 40 index and how to trade it via exchange-traded funds (ETFs), contracts for differences (CFDs), and more.

Main Points:

• CFD financial instruments like France 40 CFD and Lyxor ETF CAC 40 (CAC) CFD, allow traders to buy and sell the CAC 40 index.
• France 40 is a free-float market-capped index of 40 blue-chip companies listed on the Euronext Paris Stock Exchange.
• The index is sensitive to news, company earnings reports, and macroeconomic events.
• The index undergoes quarterly review 4 times every year by a selected committee.
• You can track and monitor the CAC 40 index price on the plus500 WebTrader platform.

What Is the CAC 40?

The CAC 40 is France's premier stock market index, comprising the 40 largest companies listed on Euronext Paris, formerly known as Paris Bourse.

The index initially relied on a total market capitalisation system, akin to the S&P 500. However, in 2003, it adopted a more nuanced approach, similar to the FTSE 100, by incorporating a float-adjusted market capitalization system that considers only freely tradable shares.

The original name of the index was 'Compagnie des Agents de Change', abbreviated as ‘CAC’. After incorporating the top 40 listed companies on Euronext Paris, it adopted the name 'Cotation Assistée en Continu' and became known as CAC 40.

Constituents of the CAC 40 Index

The CAC 40 index showcases some of France's largest corporations, including Total, LVMH (Louis Vuitton), and Airbus. It undergoes quarterly review by Euronext, a European stock exchange, on the third Friday of March, June, September, and December. This review ensures accurate representation and weighting to reflect the overall market by selecting companies based on the past year's regulated turnover combined with a "free-float market cap" system.

Among the top 100 companies by market capitalisation on Euronext Paris, the index prioritises the 1st to 35th spot, while the 36th to 45th is like a buffer zone for entry into the CAC 40 index. In addition, top-performing companies from other Euronext exchanges are occasionally granted access to the index.

Top 10 companies on the France 40 Index (As of April 2024):

How Is the CAC 40 Index Calculated?

Unlike many indices, the value of the CAC 40 index is derived based on a price return methodology. It multiplies the number of outstanding shares with the closing share prices of its member companies. This product is then adjusted by a divisor to arrive at the final index value.

The dynamic nature of the divisor ensures the index constantly adjusts itself based on the initial market capitalisation of the 40 companies and a set baseline. This approach allows the index to reflect the real-time changes in its price movements wherein some companies exert more influence due to their size.

How to View the CAC 40 Price Movement

There are various methods to track the price movements of the CAC 40 index, but one convenient option is to access its live chart directly through the Plus500 web trader platform.
This platform enables you to monitor the CAC 40 CFDs opening and closing prices, observe fluctuations throughout the day across different time frames, and execute trades seamlessly from the same platform. It also provides sentiment data and up-to-date news related to the CAC 40 index.

How to Track the Live Price of the France 40 Index CFDs in 4 Simple Steps:

1. Log into the Plus500 app or web trader platform.
2. Locate the CAC 40 index CFD by typing "France 40" in the search bar or finding "France 40 FCE" among the country indices in the instrument category.
3. Select "France 40" from the drop-down list and the live chart will appear.
4. You may click the ‘expand icon’ to transition the chart into a full-screen.

What Drives the CAC 40’s Price?

The CAC 40 price is derived from the share price of its constituent companies and it can be influenced by various factors but here are the index's most influential drivers:

Company Earnings

Due to its market-cap-weighted structure, the CAC 40 places more emphasis on the value of its largest companies. This means changes in the earnings of its largest constituents can heavily influence the index's price movements.

Central Bank Policies

France's central bank operates independently, but the European Central Bank (ECB) significantly influences the France 40 index due to France's adoption of the Euro and the presence of numerous multinational corporations in the CAC 40. The ECB's policies have a direct impact on borrowing costs and spending behaviours among businesses and consumers in the Eurozone including France, consequently affecting the performance of the stock markets and the CAC 40 index.

Economic Events

Elections can have a significant impact on the CAC 40 index, causing fluctuations as seen during the French presidential election in 2017 between Le Pen and Macron. Other major events like global pandemics or farmers' strikes in France can also negatively influence the French 40 index price.

Commodity Prices

Fluctuations in commodity prices can significantly impact the stock prices of relevant French companies, subsequently affecting the overall value of the index. For instance, a decline in oil prices is expected to negatively impact the share price of oil and gas companies within the CAC 40 index.

Economic Data

The French economic health, as indicated by reports on inflation, employment trends, and GDP, serves as a pivotal determinant guiding monetary and fiscal policy decisions that ultimately shape the trajectory of the French stock market and the France 40 index price.

How to Trade the CAC 40

Irrespective of your trading strategy, it is important to understand the instruments available to gain exposure to the CAC 40 index price. Therefore, traders may consider the following:

1. Trading the France 40 CFDs.
2. Trading the France 40 Futures.
3. Trading the France 40 Options.
4. Trading the France 40-related ETFs.
5. Trading the France 40 constituent Shares.

Trading the France 40 CFDs

With Plus500, you can gain exposure to the CAC 40 index price through our France 40 offering via a CFD trading account.

When you trade the CAC 40 CFDs (France 40 FCE), you do not own the underlying assets or its constituent stocks. Instead, you are trading Contracts for Differences based on the France 40 index futures price. This involves opening a buy or sell position to make a profit or loss from the difference between your entry and exit price.

The France 40 CFD market allows for the use of leverage and does not require an exorbitant amount of margin, making it ideal for retail traders.

Trading the France 40 Futures

France 40 futures contracts are like agreements to buy or sell the CAC 40 index later at a set price. They're useful for either making long-term predictions about the CAC 40's future performance or hedging French stock investments against losses. But, they typically demand large margins, which might not be feasible for everyday traders.

Trading the France 40 Options

Options contracts give traders the flexibility to buy or sell the CAC 40 at a predetermined price, but it is subject to the operator to exercise this right. As time progresses, if the value of the contract remains far from the strike price and the expiration date looms, the value of the option declines rapidly. Therefore, timing is a critical factor when entering into options contracts, and the distance from the strike price matters greatly.

Trading the France 40-related ETFs

You may consider speculating on the price movements of exchange-traded funds (ETFs) that replicate the index's performance, This can be done by trading ETF CFDs*. One notable ETF designed to track the CAC 40 Total Return Index is the Lyxor ETF CAC 40.

Trading the France 40 Constituent Shares

If you're not keen on diverse exposure to the companies within the CAC 40 index, you can trade the individual stocks that make up the index. This approach involves trading share CFDs* with leverage, providing you with the flexibility to capitalise on its price movements in either direction. You can explore the offerings of prominent French companies such as Sanofi, a global pharmaceutical company, energy titan TotalEnergies, or banking powerhouse BNP Paribas, all significant constituents of the CAC 40 index.

*Availability based on regulation

Why Is the CAC 40 an Important Index?

1. Economic Importance: France is the second-largest country in Europe in terms of GDP and represents roughly 20% of the entire European economy, hence the CAC 40 provides a glimpse into the health of the Eurozone.


2. Global Reach: In terms of multinational presence, the CAC 40 outshines other European markets. This international exposure makes the CAC 40 a preferred index for investors seeking European market diversification.


3. Benchmark Index: The CAC 40 serves as the leading benchmark for French equities on Euronext Paris, France's largest stock exchange.


4. Selection Process: Companies are chosen based on strict criteria including market capitalization, trading activity, financial health, and liquidity.


5. Liquidity: High trading volumes on the CAC 40 allow traders to enter and exit positions quickly with the least slippage.


6. Volatility: The CAC 40 reacts to major economic news and fluctuations in oil prices, presenting both potential for significant gains and increased risk.

Steps to Buy and Sell CAC 40 CFDs With Plus500

You can follow these steps to start trading the CAC 40 CFDs:

1. Signing up for a trading account is the first step to begin trading the CAC 40.
2. Login to explore our user-friendly WebTrader platform for analysing and executing trades.
3. Find the instrument representing the CAC 40 index either through the instrument category section or the search bar.
4. Analyse the CAC 40's current market conditions to decide whether to go long or short.
5. Define your contract size and set risk management parameters like stop-loss (close at loss order), take-profit (close at profit order), or trailing stop orders.
6. Finally, click "Buy" or "Sell" to confirm your trade and monitor the trade.

Why Trade the CAC 40 With Plus500

• Flexibility: Plus500's user-friendly platform lets you trade CAC 40 CFDs on your desktop, iOS, or Android device.
• Advanced Trading Tools: The platform offers charting tools, technical indicators, and economic calendars to make well-rounded trading decisions for the CAC 40.
• Fast & Reliable Execution: Plus500 prioritises fast and reliable order execution, ensuring you enter and exit trades at your desired prices.
• Competitive Spreads: Plus500 offers tight spreads on the CAC 40 which may minimise your trading costs. Be aware that other fees may apply.
• Leverage: This allows you to magnify potential profits on the CAC 40, but remember it also increases potential losses.

France 40 (CAC 40 Index) Market Trading Hours

You can trade a range of CAC 40 CFDs and monitor their price movement on the Plus500 trading platform. Generally, we offer trading — 5 days a week, from Monday to Friday, between 23:00 to 00:00 CET, with a daily break at 22:15 to 22:30 CET time. However, trading platforms’ hours and choice of instruments are subject to each operator.

Conclusion

This trading guide equips both novice and seasoned traders with the adequate knowledge and insight needed to begin trading the CAC 40 index. A good understanding of the CAC 40's significance, its constituent companies, calculation methods, and price drivers provides you with a solid foundation for making informed trading decisions. Note that successful trading demands continuous learning, practice, and disciplined decision-making.

Frequently Asked Questions

What Strategy Can I Use to Trade the CAC 40?

It is possible to use a trend-following strategy to trade the CAC 40 because the index price tends to trend like most other indices.

Who Sets France’s Monetary Policy?

France is a member state of the EuroZone and monetary policy for the Eurozone is set by the European Central Bank (ECB) in conjunction with the national central banks of each member state.

How Can I Test My CAC 40 Trading Plan?

You can test your CAC 40 trading plan using a demo account. A demo account allows you to practise trading the CAC 40 with simulated funds to see if your trading strategy works before risking real money.