What is the Nikkei 225 Japanese stock index?

Nikkei 225

The Nikkei (or Nikkeil 225) index is the most recognised Japanese stock index. It includes the top 225 Japanese companies listed on the Tokyo stock exchange. The Nikkei is considered an important measure of the Japanese stock market and the performance of the country's economy.

Some of the companies listed in the Nikkei index include Fujitsu, Hitachi, Honda Motors, Kawasaki and Mitsubishi. The technology, consumer goods and materials sectors make up around 84% of the index (with the tech sector representing 47% of the index).

Unlike other indices whose stocks are ranked by market capitalisation, the stocks that make up the Nikkei index are ranked by share price. The prices of the shares are denominated in Japanese yen, and its components are revised once a year.

Nikkei 225 sector breakdown

How does it compare to the TOPIX?

The other big index that tracks the Tokyo stock exchange is the TOPIX (Tokyo Stock Price Index). It ranks stocks based on free float-adjusted market capitalisation. The TOPIX also tracks all domestic companies listed in the first section of the Tokyo stock exchange. As of 2017, the first section included over 2,000 companies.

Major differences have been identified between the Nikkei and TOPIX indices. It is often said that the TOPIX is a better representation of Japan's stock market. This is due to the differences in weighting between the two indices and to the greater number of companies included in the TOPIX.

The Nikkei 225's evolution since 1914

Nikkei 225 chart

How does one invest in the Nikkei 225 index?

The Nikkei index doesn't allow individual foreign investors to directly buy or hold stocks. However, investors can obtain exposure to the index by purchasing stocks through exchange-traded funds whose constituents correlate with the index. ETFs (exchange traded funds) include a selection of stocks or other securities. As with stocks, ETFs trade during the day and are subject to price fluctuations.

Investors use ETFs for speculative trading strategies, such as margin trading and short selling. Investors can trade the entire market as if they were trading a single stock. By creating a diversified portfolio, ETFs allow investors to meet specific asset allocation needs, such as a 75%/25% stock/bond allocation. Tax-conscious investors can also take advantage of ETFs to reduce fiscal impacts. The unique structure of ETFs allows investors who trade large volumes of ETFs to buy them back to get stocks that they follow.

Here are some ETFs that track the Nikkei, you can buy them through stock brokers such as DEGIRO.

  • AMUNDI INDEX MSCI JAPAN UCITS ETF DR (C) EUR
  • AMUNDI JPX-NIKKEI 400 UCITS ETF (C) EUR
  • AMUNDI JAPAN TOPIX UCITS ETF (C) EUR
  • Lyxor JPX-Nikkei 400 (DR) UCITS ETF Acc EUR
  • OSSIAM JAPAN MINIMUM VARIANCE NR UCITS ETF 1C EUR
  • Lyxor PEA Asia Pacific (MSCI AC Asia Pacific Ex Japan) UCITS ETF Acc EUR
  • Lyxor Japan (TOPIX) (DR) UCITS ETF Dist EUR
  • Lyxor PEA Japon (TOPIX) UCITS ETF Acc EUR
  • Lyxor JPX-Nikkei 400 (DR) UCITS ETF Daily Hedged to EUR Acc EUR

Indices and derivatives

There are several financial products based on the Nikkei 225 that are traded on stock markets around the world. These products include options, ETFs, futures and warrants. The Nikkei 225 is now an internationally recognised futures index. The Nikkei 225 was listed on the Singapore Stock Exchange in 1987, the Osaka Stock Exchange in 1989, and the Chicago Mercantile Exchange in 1991. Futures allow investors to speculate on the upward or downward movement of the price of the underlying asset: the Nikkei 225 index. Most advanced nations have ETFs that track the Nikkei index.

Contracts for difference

Index CFDs are financial derivatives that give you access to various stock markets without having to buy or sell the underlying stocks. Index CFDs allow you to trade on the price movements of an entire stock market.

Here is a selection of CFD brokers where you can trade the Nikkei 225 index:

The values in this table are indicative, they may have changed since the writing of this article. Only the information provided on the brokers' sites is updated regularly.

Nikkei 225Average spreadLeverageLong swapShort swap
25 1:20    
9 1:20 -2.03-2.2
10 1:20 -0.580 -0.580
9 1:20-0.817-0.850
CFD trading involves significant risk of loss, so it is not suitable for all traders (73-88% of all retail investor accounts lose money when trading CFDs).