The Nikkei is the Japanese stock market's largest and most valued benchmark, the Nikkei 225 Stock Average. It is a price-weighted index that includes the top 225 blue-chip firms in Japan that are traded on the Tokyo Stock Exchange. In the United States, the Nikkei is equal to the Dow Jones Industrial Average (DJIA). It was formerly known as the Nikkei Dow Jones Stock Average (from 1975 to 1985), now it is named after the Nihon Keizai Shimbun, or Japan Economic Newspaper, which undertakes the index's calculation.
In contrast to other indices, constituent stocks are listed by share price rather than market capitalization. The yen is used as the unit of measurement. Every year, the Nikkei's composition is reviewed, and any required adjustments are made. Companies from different sectors are included in the index. Technology, consumer goods, financials, transportation and utilities, capital goods, and materials are still the leading industries. Unlike other indexes, the Nikkei Index's constituent stocks are classified by share price rather than market capitalization.
The Nikkei is a price-weighted index, which means it is a weighted average of the stock prices of all the companies listed. The Nikkei is dominated by high-priced stocks such as technology stocks when each company's stock is weighted by its price per share.
Individual foreign investors cannot purchase and control stocks directly on the Nikkei index. Investors will, however, get exposure to the index by purchasing stocks through exchange-traded funds whose components are linked to the index. ETFs comprise investments in a variety of stocks or other assets. ETFs, like stocks, trade through the day and are subject to price volatility.
The Nikkei 225 index is used to develop a variety of financial instruments that are traded on stock markets all around the world. Options, ETFs, futures, and warrants are examples of these products. The Nikkei 225 futures are now a well-known international futures benchmark. The Nikkei 225 has certain differences that make it stand out from other indices. Investors should consider advantages like: the simplicity of being a price-weighed index; ease of tracking the overall health of the economy; fixed spread; long trading hours; less risk than capitalization-weighted indexes.