The CAC 40 may be a major benchmark for French stock exchange performance and, representing the second-largest economy within the Eurozone, is well followed. Discover more about what moves the CAC 40 price, the character of its constituents, and the way you'll set about trading it.

What is the CAC40?

The CAC 40 may be a stock market index that tracks the performance of the 40 largest stocks listed on the broader Euronext Paris, France’s largest stock market . The CAC 40, which stands for Cotation Assistée en Continu, is seen as a key benchmark for the French economy and attracts interest from traders around Europe and therefore the world.


Launched in 1987 with a worth set at 1,000, the CAC 40 may be a market capitalization weighted index, meaning that, just like the German Dax or the FTSE 100, the foremost capitalised companies within the index are given a greater weighting.


About CAC40 constituents

The largest constituents of the index by weighting feature the likes of oil giant Total, banking operator BNP Paribas and luxury goods conglomerate LVMH (Louis Vuitton). Here’s how the CAC 40 sector composition looked as of June 10 2021.


How often do CAC 40 companies change?

CAC 40 companies can potentially change quarterly when the composition is reviewed by an independent committee . the aim of this review is to make sure the weighting and index selection accurately reflects the underlying market. A newer addition to the index is French multinational wheeled vehicle manufacturer Alstom, which was listed in September 2020.


How is that the CAC 40 calculated?

The CAC 40 is calculated on a price return basis. The calculation is predicated on the present numbers of shares included within the index of every constituent multiplied by the last price and subsequently divided by an index divisor. The divisor itself, which is tailored supported composition changes, is calculated supported the initial capitalisation base of the index and therefore the base level.


What does the CAC 40 price mean?

The price of the CAC 40 indicates whether the share prices of the businesses on the index are rising or falling. If the worth of the CAC 40 is increasing, it means a selected company or group of companies are experiencing gains, which is reflected within the price of the general index. Conversely, if the CAC 40 price is falling, it means companies on the index are experiencing a decline in price.


The CAC 40 ranking is predicated on a weighted average of share prices. this suggests companies with a bigger weighting will often see their share price fluctuations have a correspondingly outsized impact on the broader index.


What affects the CAC 40 price?

The CAC 40 price is suffering from a spread of fundamental and technical drivers linked to the behaviour of the French and European economy, also as international influences. European financial institution monetary policy can have a notable impact, as does exchange rates, economic data releases, and even commodity prices.


While such drivers could also be expected to maneuver the index during a certain direction, there's no guarantee that the move will play out, so traders should consider how determining factors work together instead of simply isolate anybody factor. That said, here are a couple of of the key things to think about when trading the CAC 40.


Monetary policy and economic releases

When European financial institution monetary policy is accommodative, interest rates tend to fall and therefore the general funds and credit opportunities increase. this suggests corporate debt becomes more attractive to get and cheaper to service, creating potential for business growth and sometimes boosting stock prices successively .


Additionally, economic data releases can have an outsized influence on trading decisions. Inflation is one measure which will hit stock indices because it can erode profit margins across sectors and is also seen as a possible forebear of longer-term higher interest rates. for instance , in May 2021 inflation fears prompted the worth of such CAC 40 leaders as LVMH and L’Oreal to cause a drop by the broader index of some 1.3% during a day.


Individual company performance

As mentioned, companies that are weighted the very best within the index are more capable of moving the index than smaller constituents. for instance , Total is considerably more capable of causing changes within the CAC 40 price than Renault.


Socio-political events


Events like the good Recession and therefore the coronavirus pandemic are all capable of hitting market demand in a method or another. for instance , the pandemic in 2020 caused a pointy deterioration in manufacturing activity and market demand, seeing the CAC 40 plummet 40% in March 2020 from its record high in February that year.


Average annual returns of the CAC 40

Over the last ten years, the CAC 40 has produced a mean annual return of 4.6%. The CAC 40 average returns are essentially what managed funds will have earned in profit for investors over the course of a year.


You can see the yearly returns from 2011-2020 below. Remember, past returns are not any guarantee of future performance.


How to trade the CAC 40

There are variety of the way that you simply can trade the CAC 40; the foremost common are derivatives like CFDs, futures and options, also as ETFs. All of those instruments enable you to urge exposure to all or any 50 companies from one position.


CAC 40 CFDs


Contracts for difference (CFDs) are derivatives that take their price from the underlying market, during this case the CAC 40. As you’ll never be taking ownership of an asset, you'll speculate on whether the index goes to rise or fall in value.


CAC 40 futures


Futures contracts are agreements to exchange an asset at a group price on a group expiry date. Unlike most futures, CAC 40 contracts don’t have an underlying physical asset to exchange, as an index is nothing quite variety representing a gaggle of stocks.


CAC 40 options


CAC 40 options are contracts that offer you the proper , but not the requirement , to shop for or sell the index at a group price on a group date.


As and when CAC 40 options are available to trade, you would be doing so via CFDs. 


CAC 40 stocks and ETFs


You can also trade the CAC 40 through ETFs, or investment instruments that hold a gaggle of stocks – during this case, the shares of constituents on the index. 


Alternatively, stocks on the CAC 40 can naturally be traded individually, offering a chance to specialise in particular sectors of interest.


How to short the CAC 40

Shorting the CAC 40 involves taking an edge that the index will fall. this will be done by selling short a CAC 40 contract or shorting constituent stocks. Alternatively, traders could also be curious about shorting a CAC 40 ETF. For options, you'll buy Put options on CAC 40 stocks if you think them to be overvalued, or buy a Put option on a CAC 40 ETF.