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# Introduction to indexes and currencies

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# Introduction to indexes and currencies

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### Introduction to indexes and currencies

1. 1. Introduction To Indexes and Currencies What is an Index? A stock index is a method of measuring the value of a section of the stock market. It’s basically computed from selected stocks. Example of Indexes: U.S : Nasdaq, Dow Jones, S&P 500, Russel, Britain: FTSE100 FTSE500 France: CAC40 China: SSE Composite Index Hong Kong: Hang Seng Index India Bombay Stock Exchange Japan:
2. 2. Nikkei 225 Germany: DAX What 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, United Technologies, Verizon, Wal-Mart and Walt Disney. How to calculate it? We add all the stock values: But after calculation you find that it equals 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 the official industrial averages divisor Which is in this case 0.122834016. After dividing 1545.32/0.122834016 = 12580.55 which is the value appearing on the market.
3. 3. What drives indexes? Well as it depends on the values of the firms so if there is a decrease of the stock value of Mcdonalds the index will face a decrease too. So it depends on the value of the stock because some stocks have a bigger impact on the index. What traders use to analyse it? They have a look at the aggregate demand in these sector, they do a fundamental 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 the world 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 of fixed income; and -The use of leverage to enhance profit and loss margins and with respect to account size How to buy it or sell it? There are different types of transactions in the FX market Spot transaction: two-day delivery transaction except for the case of trades between the Us dollar, canadian dollar, turkish liram euro and russian ruble which settle the next business day. It represents a direct exchange between two currencies and has the shortest time frame, which involves cash rather than a contract. Forward transaction. In this transaction money does not actually changes hands until some agreed upon future date. The buyer and seller agree for an exchange rate in the future and the transaction occurs on that date. The date is decided by both parties
5. 5. Swap transaction: it is the most common transaction, two parties agree exchange currencies for a certain length then in a fixed date they exchange it again, Futures: Futures are standardized forward contracts and are usually traded on a exchange created for this purpose the average contract length it 3 months. Option: an FX option is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified 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 in the 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 suggest to begin with a free demo account ( 30 days) and can begin with a 50 quids minimum cash.