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# Introduction to indexes and currencies

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### Introduction to indexes and currencies

1. 1. Introduction To Indexes and CurrenciesWhat is an Index?A stock index is a method of measuring the value of a section of thestock market. It’s basically computed from selected stocks.Example of Indexes:U.S :Nasdaq, Dow Jones, S&P 500, Russel,Britain:FTSE100FTSE500France:CAC40China:SSE Composite IndexHong Kong:Hang Seng IndexIndiaBombay Stock ExchangeJapan:
2. 2. Nikkei 225Germany:DAXWhat does it exactly means?Dow Jones Industrial Average: comprises 30 stocks : Alcoa,American Express, American International Group (AIG), AT&T,Bank of America, Boeing, Caterpillar, Chevron, Citigroup, Coca-Cola,DuPont, Exxon, General Electric, General Motors, Hewlett-Packard,Home Depot, Intel, IBM, Johnson & Johnson, Morgan Chase,McDonalds, Merck, Microsoft, Pfizer, Procter & Gamble, UnitedTechnologies, Verizon, Wal-Mart and Walt Disney.How to calculate it?We add all the stock values: But after calculation you find that itequals for example: 1545.32.But it differs from its real value on the stock market right???To get to the value on the market you divide this number by theofficial industrial averages divisorWhich is in this case 0.122834016.After dividing 1545.32/0.122834016 = 12580.55 which is the valueappearing on the market.
3. 3. What drives indexes?Well as it depends on the values of the firms so if there is a decreaseof the stock value of Mcdonalds the index will face a decrease too. Soit depends on the value of the stock because some stocks have abigger impact on the index.What traders use to analyse it?They have a look at the aggregate demand in these sector, they do afundamental analysis on each stocks have a look on the economy,political impact, and other factors (Sandy Hurricane).
4. 4. FX Market:What makes it different from other markets?-Huge trading volume representing the largest asset class in theworld leading to high liquidity-Geographical dispersion-Its continuous operation: 24 hours a day except weekends, i.e.,trading from 20:15 GMT on Sunday until 22:00 GMT Friday;-The low margins of relative profit compared with other markets offixed income; and-The use of leverage to enhance profit and loss margins and withrespect to account sizeHow to buy it or sell it?There are different types of transactions in the FX marketSpot transaction: two-day delivery transaction except for the case oftrades between the Us dollar, canadian dollar, turkish liram euro andrussian ruble which settle the next business day. It represents a directexchange between two currencies and has the shortest time frame,which involves cash rather than a contract.Forward transaction. In this transaction money does not actuallychanges hands until some agreed upon future date. The buyer andseller agree for an exchange rate in the future and the transactionoccurs on that date. The date is decided by both parties
5. 5. Swap transaction: it is the most common transaction, two partiesagree exchange currencies for a certain length then in a fixed datethey exchange it again,Futures:Futures are standardized forward contracts and are usually traded on aexchange created for this purpose the average contract length it 3months.Option: an FX option is a derivative where the owner has the rightbut not the obligation to exchange money denominated in onecurrency into another currency at a pre-agreed exchange rate on aspecified date.What drives the currency market?-Traders have a look first at a fundamental analysis. For example,during my internship they were based on the unemployment data inthe U.S.-They also have a look on the economy and what people say about it.Because some might speculate about it.-Have a look on the supply of the money by the FED and their policy.-Political impact-Bad harvest ( example Tsunami for Japan).How to begin?Forex platform can be found for free online. Usually, I would suggestto begin with a free demo account ( 30 days) and can begin with a 50quids minimum cash.