Indices

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Indices

Stock or market indices are indicators of the securities market, which are calculated in a special way based on the arithmetic average or weighted average of the prices of a certain group (index basket) of the most liquid securities - common shares and bonds included in these indices. To ensure that the quotes of securities included in the calculated index were comparable to each other, they are often multiplied by additional coefficients, therefore the absolute values of the index do not have such an important value as the change in its value for a certain period of time. All stock indices make it possible to assess the state of the stock market as a whole and to determine the current moment in the economic cycle of many countries of the world. The most important stock indices are the Dow Jones (DJI30) index, divided into industrial, transport and utility, Standard & Poor's 500 (S & P 500), NASDAQ 100, FTSE 100, DAX 30, Nikkei 225, CAC 40 and ASX 200. Stock indices are traded in the form of futures contracts and CFD contracts for futures.

Example of a trade transaction in the indices market

Stock indices are very responsive to any fundamental changes taking place in the political or economic life of both individual states and the world. And the reaction of the US market to the results of the presidential elections in the United States, held on November 8, 2016 is a vivid confirmation of this. The victory of Donald Trump, whose entire election campaign was built on the promise of applying protectionism in the state administration of the economy, and held under the slogan 'Make America Great Again!', has become one of the main reasons for the largest growth of all American stock indices since the global financial crisis of 2008, what added more than 40% on average over 14 months. Within one year you could earn $ 23250, having invested $ 94,250 initially. Having bought one futures contract ($ 5 for 1 pips) at November 2016 on the DJIA Mini stock index at a price of $ 94,250 with a quotation of $ 18,850 and having sold it in a year at a price of $ 117500 with a quotation of $ 23,500, you could earn 4650 points of profit, what equals to $ 232,250.

 

Indices Market Features

  • The quotes of stock indices are influenced by the value of securities included in the calculation of the values of these indices, which, in turn, directly depend on the financial and economic condition of the issuers of these securities;
  • When trading futures for stock indices, it is necessary to take into account that this market is urgent, because this kind of contracts has a strictly defined validity period and expiration (execution) date, unlike termless (spot) contracts for difference or CFDs;
  • considering the peculiarities of its component, the market of stock indices, considered as one of the main indicators of the condition of the national economy, is extremely susceptible to the influence of psychological factors of a fundamental nature;
  • In the stock indices trading, Buy and Hold strategies are often dominated when a contract is acquired and held in a position for several months or years, what is ensured by increased income potential in favorable periods of time;
  • Futures trading on stock indices is carried out on certain exchanges, the largest of which is the Chicago Board of Trade (CBOT), having their own work schedule, in contrast to the CFD for index futures, which can be traded 24/5.
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