What are indices? by Forex Signals FxPremiere Site Online.
Chapter 1: Introduction to Indicies
The reason why they are mentioned so often is that they act as an indicator for many important things. These include (among other things):
- Stock market confidence
- Business confidence
- The health of the economy
- The health of our investments in stocks and shares.
The basic rationale is that if there is confidence, investors (such as pension funds, insurance companies, investment funds and private investors) will buy shares and the overall level of stock market prices will tend to rise.
If they don’t have confidence, then prices will tend to fall – as investors sell their stocks and either hold on to their cash or invest in something else.
This is true – but it’s also a slightly simplistic view of the indices’ meaning. In reality, many other factors will influence stock market behaviour – for example, interest rate changes, national budgets, political events, trade and economic performance announcements and so on. And that’s why it is so difficult to know which way ‘the market’ will go next.
Chapter 2: How are indices compiled?
So, for example, the FTSE 100 is compiled from the 100 largest companies listed on the London Stock Exchange measured by the market capitalisation (or ‘market cap’). That is, the number of shares they’ve issued, multiplied by the price of those shares.
Other indices employ a similar approach. The S&P 500 includes the 500 largest companies listed on the New York Stock Exchange or the NASDAQ. Dow Jones Industrial Average (‘The Dow’) is based on the 30 largest stocks listed on the same exchanges. Trading the Forex Market is not an easy task. Use our Free Signals to help you learn the patterns.
The constituent index companies are reviewed periodically to ensure that they qualify to be included in an index. Remember that the London Stock Exchange also has smaller companies indices such as the FTSE 250 or FTSE 350. Chapter 3: How to invest?
When investors want to invest in an index, they can buy into a (‘tracker’) fund that holds the same stocks in proportion to the way the index is compiled.
Investment funds, including mutual funds, manage this process and invest on behalf of their investors. They also collect the dividends paid on the shares for the investors and distribute them (or reinvest them). And they take a fee for doing this.
An increasingly popular form of index investment, are stock market listed exchange traded funds (ETFs). The charges levied by the managers of ETFs are much lower and the process of buying into them or selling out is much quicker and easier.
There are number of derivative products that ‘derive’ from indices – and you can buy options or futures on stock market indices such as the FTSE 100 and or S&P 500. Essentially these are tools for either hedging against fluctuations in the level of the indices, or betting on whether they will rise or fall, depending upon what you’re looking to achieve with your investment.
Of all the financial markets, forex is the biggest. Roughly $4 trillion is traded globally every working day. And in many ways it’s the easiest to get your head around.
‘Forex’ or ‘FX’ stands for ‘foreign exchange’. You sell the currency you are holding, let’s say Pounds Sterling, and buy another one, let’s say US Dollars.
And, just like when you buy your currency when you go abroad on holiday, the bank, post office or foreign exchange booth at the airport will quote two prices: one to sell you the US Dollars, and another to buy them from you and pay you Sterling.
The bulk of forex trading involves just three currencies – US Dollars, Euro and Japanese Yen. (For example, selling US Dollars to buy Euros, selling Euros to buy Yen and so on.) But of course forex trading can take place between any two of the many currencies used around the world.
Chapter 2: Why trade forex?
That depends. For some, it’s about getting hold of real money – as people may need to obtain a currency to buy goods or services. This could include manufactured goods or securities, such as stocks or bonds denominated in a foreign currency.
There’s also the investment opportunity. You could choose to buy a foreign currency because you may earn more interest on your money than in the currency you are holding.
And then there’s speculation. This is about selling your “base currency” and buying another in the hope that – when you sell it again – you’ll end up with more of the currency than you started with.
Chapter 3: Who trades forex?
The biggest buyers and sellers of forex are banks. Even though they may trade for their own book, they are mostly carrying out deals for customers (who may be looking to access money, invest or speculate).
Although hundreds of banks and brokers trade forex, the market is dominated by the ‘big five’: Citigroup, Deutsche Bank, Barclays, JP Morgan and UBS. Together they accounted for over half the global market turnover in 2015.
Chapter 4: Jargon busting
Forex is an over-the-counter (OTC) market. This means that trading doesn’t happen on a stock exchange, but instead between counterparties directly or via a matching platform. – Pound Sterling to Euro Exchange Rate
International standards organisation, lists 268 different currencies. So why is forex Trading Popularity growing daily? This means prices are quoted, deals are done and the proceeds paid to the appropriate bank account more or less immediately. – What is currency trading?
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However there are also forward foreign exchange contracts. This means the bank or broker will agree a rate with you today, for the currency that you wish to buy or sell at an agreed future date. – Why trade CFDs on currency pairs?
Chapter 5: How to trade in forex?
A bank or a broker will typically give you access to their online dealing platform. You can then link it to your bank account and start trading.
Chapter 6: The good and the bad
So if you sell USD and buy EUR, at the very least you will hold EUR. be careful of Arbitrage Forex
The bad news is that exchange rates could go against you, and you lose money when you trade back into your base currency. You may also make no interest on the currency you own if interest rates are rock bottom s read forex signals introduction to basics.