Trading Indices
Trading Indices
Trading Indices
Indices are one of the markets you can add to your portfolio.
Another trading plan consideration is which market to trade. There are a lot of different markets with sufficient liquidity to permit prudent speculation. it's important to choose markets that are applicable for your account size, risk level and trading style.
If you trade a diversified portfolio, there is a greater chance that you will catch some of the truly giant moves which make for successful trading.
Stock Exchange Index
A market index is a technique of measuring a piece of the exchange.
The most continually quoted market indexes are broad-base indexes made up of the stocks of substantial companies mentioned on a country's largest stock exchanges, such as,
British FTSE 100
American DJ 30 & SP 500
German DAX 30
Australian Aussie 200
French CAC 40
Weighting
They involve the total market capitalization of the firms weighted by their effect on the index, so that the bigger stocks would make more of a difference to the index in comparison to a smaller market cap company.
Price-weighted index - such as the FTSE, the cost of each component stock is the sole consideration when determining the value of the index.
Market-value weighted or capitalization-weighted index like the Hang Seng Index factors in the size of the company.
Market Cap Indices face new rivals.
Innovative techniques of index construction will supplant traditional market capitalisation-weighted indices as the dominant driver of equity baselines within 20years, according to FTSE Group.
A number of alternative approaches have emerged lately, such as Fundamental Indices in which stocks are weighted by metrics like book value, dividends and sales and Minimum Variance, in which portfolios are designed to reduce volatility.
FTSE has recently launched a family of Risk Efficient Indices. This covers the US, UK, Eurozone, Japan and Asia Pacific ex-Japan and has outperformed standard indices in backtesting.
Legal & General Investment Management runs just 800m of passive money baselined to Fundamental Indices, compared with about 150bn linked to market-cap. This shows strong support for the traditional market-cap index.
FTSE ( Financial Times Stock ( London ) Exchange )
This is a share index of the hundred most highly capitalised UK firms noted on the London Stock Exchange. The index began on 3 Jan 1984 with a base level of one thousand, the highest worth reached to date is 6950.6, on 30 December 1999.
The index is maintained by the FTSE Group, an independent company which originated as a collaboration between the financial times and the London Stock Exchange. It is figured out in real-time and published every 15 seconds.
FTSE 100 companies represent about 81% of the market capitalisation of the entire London Stock Exchange. Although the FTSE All-Share Index is more comprehensive, the FTSE 100 is by far the most generally used UK stock market indicator.
As of 30 September 2008, the net market capitalisation of FTSE 100 Index was 1,171 bln.
Things That Affect Indices
National economic data.
Company data.
Time of the year Buy in November & Sell in April.
Market Opening Times
FTSE 100 8am - 4.30pm
Dow Jones 2.30pm - 9pm
DAX 30 7am - 9pm
Aussie 200 10.50pm - 5.30am
It is important to take these facts on board if you which to trade indices.
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