# CAC 40

CAC 40 is a French stock market index tracking 40 major shares listed on Euronext Paris, weighted by free-float-adjusted market capitalization.

## What it means

The CAC 40 follows 40 major shares traded on Euronext Paris. It is commonly used as a snapshot of the French stock market, but it does not include every French-listed company. Its composition can change over time, and some constituents conduct substantial business outside France.

The standard CAC 40 is a **price index**: it tracks share-price movements rather than treating dividends as reinvested. Dividend-inclusive versions are separate measures. An index level is expressed in **points**, not euros; it is not the price of a share or the value of a directly tradable basket.

## How it is calculated

The CAC 40 is weighted by **free-float-adjusted market capitalization**. Free float excludes shares considered unavailable for regular public trading, such as certain long-term strategic holdings. The index methodology also caps constituent weights, so the following simple formula illustrates the core weighting principle rather than every detail of the published calculation:

`Illustrative weight_i = (price_i × shares_i × free-float factor_i) / Σ(price_j × shares_j × free-float factor_j)`

- `weight_i` is stock `i`’s share of the total, expressed as a fraction or percentage.
- `price_i` is its share price, in euros per share.
- `shares_i` is its number of outstanding shares.
- `free-float factor_i` is the proportion of those shares counted as publicly tradable, between 0 and 1.
- `Σ` means add the free-float-adjusted market values of all constituents, indexed by `j`.

Each multiplication produces a value in euros; dividing by the total removes the currency unit. The published index level also uses a divisor and adjustments to maintain continuity through events such as changes in constituents. A 1% move in a stock with a 10% index weight contributes approximately 0.1 percentage point to the index return, before other stocks move.

## Worked example

These are **hypothetical round numbers**, not actual CAC 40 constituents or weights. Imagine a simplified two-stock index to see how free-float weighting works:

1. Company A has 100 million shares priced at €100, with a free-float factor of 0.80. Its adjusted market value is `100 million × €100 × 0.80 = €8 billion`.
2. Company B has 100 million shares priced at €50, with a free-float factor of 0.40. Its adjusted market value is `100 million × €50 × 0.40 = €2 billion`.
3. The combined adjusted value is €10 billion. A’s illustrative weight is `€8 billion / €10 billion = 80%`; B’s is 20%.
4. If A rises 1% and B is unchanged, the simplified index rises approximately `80% × 1% = 0.8%`. At a hypothetical starting level of 1,000 points, that is about 8 points.

The real CAC 40 has 40 constituents and applies its own index rules; the example is only arithmetic practice.

## Why it matters before you trade

An index move provides **market context**, not a quote for a particular stock. A heavily weighted constituent can move the CAC 40 while another constituent moves in the opposite direction. Likewise, a broad index decline does not tell you the bid-ask spread, available liquidity or likely market impact for a specific order.

Before trading a French-listed share, distinguish the index’s percentage move from the share’s own price and trading conditions. If comparing an individual stock with the index, use matching periods and check whether dividends are included in the comparison series. Currency also matters when assessing returns in a currency other than euros.

## How PreTrAIde uses it

PreTrAIde’s stated product features do not identify the CAC 40 as a direct input or benchmark. Its **pre-trade analysis** instead examines the stocks in a user-built basket before an order is placed. For each line and the basket, it provides a GO, NO-GO or MODIFY verdict, a model-estimated success probability, a risk assessment, a suggested execution strategy and plain-language reasoning.

For a CAC 40 constituent included in a basket, a relevant pre-trade check concerns that stock and the proposed order: estimated spread, participation in daily volume, market impact, volatility and basket exposures. These estimates are decision support, not a recommendation or an index forecast. PreTrAIde does not place orders; users trade through their own broker.

## Common mistakes

- **Treating index points as euros.** A move of 50 points has no fixed euro value for an individual share or account.
- **Assuming every constituent has equal influence.** Free-float-adjusted size matters, subject to index rules.
- **Confusing the price index with a dividend-reinvested return.** Specify the version when comparing performance.
- **Treating index liquidity as stock liquidity.** Each constituent has its own spread, volume and execution risk.
- **Equating the index with all French stocks.** It covers a selected group, not the entire market.

---
Source: https://pretraide.com/glossary/cac-40