Guide on Trading the ASX 200 like a Professional

The S&P/ASX 200 is Australia’s main stock market index, comprised of the 200 largest stocks listed and acts as a benchmark for the Australian equity performance. Companies from the ASX 200 have a market cap that ranges from a few hundred million US dollars to more than one hundred billion.

Since the index is a very liquid instrument, trading activity around is also very high. That’s the main reason why futures, ETFs based on ASX 200 stocks, and CFDs are traded by retail traders and institutions. 

Breaking down the ASX 200

If we divide the index by sectors, the ASX 200 is represented by all Global Industry Classification Standard (GICS) sectors. Financials represent 30.3% of the index, with names like Commonwealth Bank and Westpac Banking Corp currently holding market caps around or above 100 billion US dollars.

Materials hold 18.3% of the Australian index, being represented by names like BHP Group Limited, is has a market cap above $121 billion. The third dominant sector is health care, with 8.4% of the index, the same as Industrials.

With so many liquid stocks as part of the index, the ASX 200 is one of the most popular trading instruments among institutional investors. If the “smart money” goes into the index, the question that arises is: How can retail traders trade the Australian benchmark index?

Trading the ASX 200 for retail traders

Since we are talking about a very liquid instrument, breakout strategies work well in this type of environment. The main reason for that is we have a huge amount of liquidity behind any market move and counter-trend players will need to commit an even larger amount of capital in order to turn the market the other way around.

Institutional investors monitor key support and resistance levels and well as how the index performs when it reaches historical levels. That’s where trading opportunities with low risk and a high potential for returns occur, and because of that, that’s where retail traders should be active, as well.

If you live in a time zone that allows you to trade the ASX 200 index and you won’t need to stay awake during the night, it represents an instrument that can give you exposure to one of the most important Asia-Pacific markets. By trading the index you’ll basically trade the overall direction of all the large-cap companies from Australia, meaning you’ll get involved in the companies that have the highest potential for sustained and stable growth.

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