The day before yesterday, on January 25th, 2016, the US index of Dow Jones reached the level of 20 thousand pointsfor the first time ever. This figure was made possible due to a number of influential factors – the US President Donald Trump statements, a number of positive reports and the parallel growth of indices, inflation growth of some indicators and revision of some provisions of the lending policy. On the basis of such factors and the complexity of a difficult reading of trade indices, analysts and marketing department of Trade-24 company have decided to write about these indicators, how they are calculated and what can help traders in its trading. , we took five of the most influential financial and trade indices into the basis of our review, which can change the situation on the market. They are DowJones, S&P 500, Nasdaq Composite, DAX and Nikkei 225.
What is the stock indices and how they are formed?
When you look at market indices, the first impression is “they are so complex, it is impossible to make out where there is to buy, where to sell, where to trade and where to wait”. But this impression is quite wrong, because after the first meeting and further work with this data, they become quite clear, concise and compelling.
Let’s begin with definition, what a stock market index is. Stock Market Index is a measure of price changes in a particular group of securities. We can imagine the stock index as a “basket of shares”, which are united on similary to its group.The most important in the study of the index is a formation with one or another of shares/bonds. It is a set of securities included in the list, which based on the calculatation of index , and it determines by the information, which can be obtained by observing the dynamics of the index.
Among the leading index is worth noting the US Dow Jones Industrial Average (Dow Jones). This index is a compilation of data from 30 leading US companies, which cover almost all market areas except for transport and utilities. In its clue, this index indicates how the general condition of the US economy among the so-called “blue chips” (the most successful companies with stable profit).
The second index S&P 500 is an indication of the purchasing power of companies with a leading number of investments. This exchange rate is often not part of the largest US companies due to private forms of ownership and the presence of lack of liquidity. In addition, this list of market traders try to be more fully represent into the various sectors of the US economy. Also in the calculation of the index it is taken list of the 500 largest companies on the NYSE and NASDAQ, which cover 75% of the total US stock market capitalization.
NASDAQ Index is formed by indicators, which have been taken by the account the behavior of more than 4,500 US and foreign companies. Among the major investors include a consolidated NASDAQ Composite Index (comprising all companies in Listing Exchange), NASDAQ National Market (US companies), as well as the mass of the sectoral indices. Also on the NASDAQ stock exchange capitalization doesn’t depend on the price.
Two non-US Index – German DAX30 and the Japanese Nikkei 225 indicate the price condition of the goods and services in the markets of their countries.
The index of business activity in Germany includes the activity of thirty leading companies, including Adidas, BMW, Continental, Deutsche Bank, Lufhansa, Henkel, Volkswagen and many others. This index indicates the strength about the position of the country’s economy, its future industrial and financial potential.
These indices also report a number of companies present in the auction (most often the number at the end stants after the name of the index), level of stable income,the impact on the value of the currency pairs. For example, the Nikkei index seriously put pressure on the Japanese yen, and the German index does pressure on the euro and the EU’s long-term bonds.
As for the Japanese stock index, it includes in its list 225 major corporations of the country – from the food to the aircraft manufacturing sector. Among the “blue chips” of the Tokyo Stock Exchange are the provided several well-known global companies like Canon, Conami Ent., Mitsubishi Corp., Panasonic and others.
As you can see, these five stock indices show the value in the different countries indicate the purchase capacity and the likelihood of further buy/sell quotations. To learn how to use all the same stock indices and data – a little more detail in the next section.
How to use financial indices for the realization of trades?
As can be appreciated, the stock used to build the index according to certain criteria, depending on the purpose of drawing up a specific index. The methods of index calculations imply the inclusion of financial instruments, that have similar characteristics. In particular, the share capital of the companies, whose shares are registered in the index, should not vary by orders of magnitude.
It is clear, that the movement of the share quotations of the famous and large companies reflects the dynamics of trades for the smaller financial instruments from the same industry (which is important to clarify). But the stock indices in different industries need to create hypotheses about the dynamics of price movements of different companies the same industry, even got in the index itself. Accordingly, the sectoral indices help investors to assess the prospects of investments in the company of a particular sector of the economy at a particular time.
In general, the existence of the indices have several problems. They can be used for multiple purposes in social commerce. One of the most important is to obtain a general understanding of the dynamics of the stock price of a particular group (companies, countries, industries, etc.). Often, these data is used to carry out the speculative transactions. The second objective is to obtain information on changes in investor sentiment. For example, if the indices are rising, it means to investors about positive prospects of investments in certain stocks.
Another task is to observe rhe index for a long time, which provides the scheme of the investment climate in the country. It often happens that, besides the value of the index, that published information about the total turnover of shares and member companies. Changing of these numbers gives an indication of the overall activity of traders on the market in transactions with the securities of a certain type.
Based on the above list of the intended use of indices, we note that, there are dozens of indices, which had been created and actitely used in the world, if not hundreds of different indexes. Any of these tools can be useful to perform a specific task. The most important thing is to know how to use the indices and what they based and are calculated to share. Then it is possible to analyze and understand the dynamics of information that carries a particular index.
Finally, we permit that the analysts of Trade-24 are advising to look closely to all the most important indicators of stock market indices. It will help young traders to be able to count on the expected outcome, and for experienced professionals – to keep in mind that the result of successful transactions depends on the knowledge in their field of trading.