T2W Guide to Trading: Indices
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Edited by Quercus - Last Updated: 10th January, 05
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Editor's Message:
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Welcome to the T2W Indices Guide. We hope that this new initiative will over the next few months develop into a valuable resource for both new and experienced traders alike.
As the editor to the guide I am simply that - the editor. There are many of you out there with more knowledge than myself, and I would like to invite you all to add to this guide. Please post and I will add all new and improved information to the guide. After this your post will be removed in order to keep the guide as concise as possible.
If you'd like to volunteer as a particular forum editor please email us at [email protected] with a description of your trading experience and the reasons why you think you'd make a good editor.
I am therefore I edit!
Quercus
16th Feb, 04
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How does it work?
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Indices Guide Contents
------------------------------------------------------------------
1. The Guide
2. FAQs
3. Recommended Forum Topics
4. Glossary
5. Further Resources
a) Related Links
b) Recommended Reading
c) Brokers
------------------------------------------------------------------
1.1 Introduction
This guide is intended to be an overview to the main indices which traders encounter in the exchanges around the world. It will endeavour to explain the origins of each index, and provide a brief explanation as to how the index value is calculated. As will become apparent, indices vary from exchange to exchange, and as such it is important that we know how the figures are arrived at before we can begin to use the information that they provide.
It is perhaps worth noting here that this is quite simply a guide to each index, and not a guide to trading indices. Any links to trading will be entered at the appropriate place, to assist readers in their knowledge quest.
1.2 Overview
Standard and Poor's and Morgan Stanley are known as the world leaders in the production of economic data, which is used throughout the world's financial markets. In late 1999 the two organisations came together to provide an industry standard classification system known as the Global Industry Classification Standard, or GICS.
There are literally hundreds of thousands of indices covering any company in any sector of industry you care to imagine and it is not the intention to discuss these here. What we will concentrate on however, are the main indices which relate to the respective financial exchange, plus a number of the more commonly referred to indices you might encounter in your trading.
For more information on specific sector indices take a look here:
www.dowjones.com
www.ftse.com
1.3 Quick Reference
A list of links to the various exchanges for trading hours and holiday dates. Please note that all times are in local time to each respective exchange.
1.4 The Indices
1.5 The Other T2W Guides
Here is a list of links to all the guides that T2W runs.
T2W Software Guide
T2W Data Feeds Guide
T2W Options Guide
T2W Forex Guide
T2W First Steps Guide
T2W Techies Corner Guide
T2W Security and Virus Information
------------------------------------------------------------------
What is an Index?
In very simple terms an index is a figure which is calculated in various ways to represent the value of a group of stocks, either in a specific sector or across a whole market.
How can I trade the Dow?
Make a choice from the various contracts available including futures, options on futures, SB companies, ETF's or invest in the many Index tracking funds offered in the market.
Why doesn't my SB company's Dow equivalent contract directly match the Dow Jones Index?
Because it is based on a complicated mathematical equation (algorithm), which is derived from a combination of the cash and futures values, and who knows what else! If you work it out could you please send me a PM!
------------------------------------------------------------------
Trading The Dow Summary
Started by Newtron Bomb
A compilation of the weekly trading summaries as provided byChartman
FTSE 100 January
Started byBonsai
The current month's trading diary for the UK index.
Indices Page
Started bynigelpm
A great quick reference guide to some of the main indices, set up voluntarily by nigelpm.
Options Trading Thread
Started byMorris
A good introduction to the world of options with some more useful links.
------------------------------------------------------------------
AMEX
The American Exchange
ASX
Australian Stock Exchange
Borse
European name for Exchange
CBOE
Chicago Board of Options Exchange
CBOT
Chicago Board of Trade
CME
Chicago Mercantile Exchange
LIFFE
London International Financial Futures and Options Exchange
LME
London Metal Exchange
LSE
London Stock Exchange
Nasdaq
National Association of Securities Dealers Automated Quotation system
NYSE
New York Stock Exchange
NZX
New Zealand Stock Exchange
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-------------------------------------
Basic Trading Information
An introduction to Spread Betting
Investment Information
An introduction to Exchange Traded Funds
Commitments of Traders
Useful information relating to outstanding contracts on the US Exchanges
-------------------------------------
Trading in the Zone
By Mark Douglas
Amazon
Reminiscences of a Stock Operator
By Edwin Lefevre
Amazon
Trade2Win Bookstore
-------------------------------------
Spread Bet Companies
There are several spread bet companies, offering all kinds of products and spreads, varying from “Binary Bets” on FTSE or Daily Dow, through to futures spreads on the indices for several months ahead. Due to the nature of taxation laws in the UK, you are currently not taxed on any profits your make (tax legislation in the UK can of course change without notice).
IG Index
Deal4Free
Finspreads
Capital Spreads
TradIndex
City Index
Direct Access Brokers
Direct Access brokers cut out the middle man, and allow you to deal more closely with your chosen exchange, speeding up trade execution times and opening up a wider variety of products to trade. The downside is that you will pay commission and taxes on your profits - unlike Spread betting - although there is no spread involved.
Interactive Brokers
GNI Touch
------------------------------------------------------------------
Edited by Quercus - Last Updated: 10th January, 05
------------------------------------------------------------------
Editor's Message:
------------------------------------------------------------------
Welcome to the T2W Indices Guide. We hope that this new initiative will over the next few months develop into a valuable resource for both new and experienced traders alike.
As the editor to the guide I am simply that - the editor. There are many of you out there with more knowledge than myself, and I would like to invite you all to add to this guide. Please post and I will add all new and improved information to the guide. After this your post will be removed in order to keep the guide as concise as possible.
If you'd like to volunteer as a particular forum editor please email us at [email protected] with a description of your trading experience and the reasons why you think you'd make a good editor.
I am therefore I edit!
Quercus
16th Feb, 04
------------------------------------------------------------------
How does it work?
------------------------------------------------------------------
- Each forum will have a guide which will act as a digest of information concerning the subject of that forum
- The guide will always be the top thread in the forum
- Each guide will have an editor who's job it will be to update the guide
- Please contribute to the guide in any way you can. The editor will integrate your suggestions, feedback and text into the guide - whereupon your post will be removed.
- For a full description and to discuss the guides further please use this thread
Indices Guide Contents
------------------------------------------------------------------
1. The Guide
2. FAQs
3. Recommended Forum Topics
4. Glossary
5. Further Resources
a) Related Links
b) Recommended Reading
c) Brokers
------------------------------------------------------------------
1.1 Introduction
This guide is intended to be an overview to the main indices which traders encounter in the exchanges around the world. It will endeavour to explain the origins of each index, and provide a brief explanation as to how the index value is calculated. As will become apparent, indices vary from exchange to exchange, and as such it is important that we know how the figures are arrived at before we can begin to use the information that they provide.
It is perhaps worth noting here that this is quite simply a guide to each index, and not a guide to trading indices. Any links to trading will be entered at the appropriate place, to assist readers in their knowledge quest.
1.2 Overview
Standard and Poor's and Morgan Stanley are known as the world leaders in the production of economic data, which is used throughout the world's financial markets. In late 1999 the two organisations came together to provide an industry standard classification system known as the Global Industry Classification Standard, or GICS.
There are literally hundreds of thousands of indices covering any company in any sector of industry you care to imagine and it is not the intention to discuss these here. What we will concentrate on however, are the main indices which relate to the respective financial exchange, plus a number of the more commonly referred to indices you might encounter in your trading.
For more information on specific sector indices take a look here:
www.dowjones.com
www.ftse.com
1.3 Quick Reference
A list of links to the various exchanges for trading hours and holiday dates. Please note that all times are in local time to each respective exchange.
1.4 The Indices
- The FTSE
Also known as the Footsie, it's official title is Financial Times Stock Exchange Index. Again there a too many to mention, but the main ones of interest would be the FTSE100, FTSE250 and FTSE All-Share. The one referred to by traders is the good old Footsie 100, which reflects the value of the top 100 companies listed on the London Stock exchange as valued by Market Capitalisation. In simple terms a figure which represents the value in pounds of the total value of one share in each of the top 100 companies.
In trading terms, people either trade FTSE futures, futures options, or a related instrument as produced by the various SB companies which is a figure derived from both the cash index and the futures price. For example Deal 4 Free refer to it as the UK100.
More information here:www.ftse.com
- The DJIA
The Dow Jones Industrial Average, more commonly referred to as The Dow, and as the name suggests it is not an index at all! It is in fact an average. First created by Charles Dow in 1896, it was originally made up of twelve stocks, through the years this became twenty, and now consists of 30 of the top blue chip companies. It is a figure calculated from the total value of these stocks which is "averaged" using a mathematical formula. Perhaps the better known of the US indices but far from the most important, due to the obviously small representation of the whole market.
Traders will use futures, futures options, or again an SB derived instrument, Deal 4 Free refer to their derived instrument as the US30. Also traded by many using the e-mini contract known as YM and traded on the ECBOT. Deal 4 Free refer to their derived instrument as the US30.
More information here:www.djindexes.com
- The S&P 500
Commonly known as the Spooz, and widely regarded as the benchmark index which reflects the overall sentiment of the US market. It consists of a representative sample of 500 leading companies in the main industrial sectors of the market. With a history that dates back to 1923, the index as it stands today was established in 1957 when it was increased from 223 companies up to the present figure of 500.
Related indices are the CBOE (Chicago Board of Options Exchange) Volatility Index, known as the VIX, which is a measure of expected market volatility. As well as the S&P Banking Index, known as the BIX, touted by many as a useful indicator of the overall S&P500.
Traders can choose futures, futures options, Exchange Traded Funds (ETF's), SB companies, or the baby brother of the Spooz which is the EminiS&P500, commonly known as ES. This is the exclusively electronically traded instrument available via the Globex Exchange, and is perhaps the most widely traded futures instrument in the world.
More information here:www.standardandpoors.com
and here:www.cme.com/get/
- The Nasdaq
The Nasdaq Composite index is the best known technical index in the world. Sometimes referred to as The "Comp", it contains all stocks listed on the exchange, which is currently over 4000. The Index was born in July 1984 at a base level of 100! The Nasdaq 100 is another well known index of the exchange which represents 100 of the largest non-financial companies listed on the exchange based on weighted market capitalisation.
Another Nasdaq related index is the Phillips Semi-conductor Index, also known as the Sox. This is highly regarded as a useful indicator of the overall market.
This market can easily be traded through the Exchange Traded Fund QQQ, commonly referred to as The "Cubes", which tracks the Nasdaq100 index. Alternatively traders can use futures contracts, options or the well known SB derivative contracts.
More information here: www.nasdaq.com
- The Dax
The Dax reflects the German blue chip segment comprising the largest and most actively traded German companies that are listed on the Frankfurt Stock Exchange. It was established as the benchmark German index in 1959 when it took over from the Borsen-Zeitung Index. Only the publicly available or "free float" stock issued is taken into account when assessing companies for inclusion in the index.
Mainly traded through futures and via the usual SB company instruments.
- The Eurostoxx 50
This is the Index prepared by Dow Jones which represents 50 of the top companies traded on the Eurex Exchange. These are only companies from Continental Europe and so exclude UK companies. Nokia is a market heavyweight of this index and as a result, any activity related to this stock has a direct impact on the index.
Mainly traded via futures contracts.
More information here:www.eurexchange.com
- The Nikkei 225
The Nikkei 225 Stock Average is like the Dow in not being a true "index". The value is calculated as the summation of the values of 225 blue chip companies listed listed on the Tokyo Stock Exchange, divided by a numerical divisor.
Again tradeable via futures, futures options and through the various SB company instruments.
- The Hang Seng
The leading index of the Hong Kong Exchange. It is a market-value weighted index of the 33 largest companies listed on the Exchange. As such it is dominated by the largest company on the market, which is HSBC. As a result of this the futures contract has a much greater volatility than other instruments.
- The CAC 40
The index which represents the performance of the Paris Borse as a reflection of the value of the top 40 companies of the French Exchange.
- The SPI
This is generally accepted as the benchmark index for the Australian Stock Exchange. It's official title is the S&P/ASX200, and is the index as calculated by Standard and Poor's to represent the value of the top 200 companies listed on the exchange. This index represented approximately 90% of the total market capitalisation of the exchange in June 2002, and is clearly one of the most accurate of all the global indices.
Tradeable via futures and SB instruments such as Deal 4 Free's Aussie 200 contract.
More information here:www.asx.com.au
- The NZSX 50
I had to give it a mention, despite being the minnow of all of them!
Comprised of the top 50 companies as listed on the NZ Exchange by free-float market capitalisation. The NZX50 took over from the NZSE40 in March 2003, and is unique in the respect that it takes into account dividends payable by the constituent companies. This is due to the fact that dividends payable are somewhat higher than is the norm in other markets. This index is dominated by Telecom New Zealand which makes up approximately 25% of the index. In daily trading Telecom frequently accounts for 50% of the turnover of the whole market.
Not tradeable, unless you're interested in Deal 4 Free's contrived instrument which reflects the top 10 companies!
More information here:www.nzx.com
1.5 The Other T2W Guides
Here is a list of links to all the guides that T2W runs.
T2W Software Guide
T2W Data Feeds Guide
T2W Options Guide
T2W Forex Guide
T2W First Steps Guide
T2W Techies Corner Guide
T2W Security and Virus Information
------------------------------------------------------------------
- What is an Index?
- How can I trade the Dow?
- Why doesn't my SB company's Dow equivalent contract directly match the Dow Jones Index?
What is an Index?
In very simple terms an index is a figure which is calculated in various ways to represent the value of a group of stocks, either in a specific sector or across a whole market.
How can I trade the Dow?
Make a choice from the various contracts available including futures, options on futures, SB companies, ETF's or invest in the many Index tracking funds offered in the market.
Why doesn't my SB company's Dow equivalent contract directly match the Dow Jones Index?
Because it is based on a complicated mathematical equation (algorithm), which is derived from a combination of the cash and futures values, and who knows what else! If you work it out could you please send me a PM!
------------------------------------------------------------------
Trading The Dow Summary
Started by Newtron Bomb
A compilation of the weekly trading summaries as provided byChartman
FTSE 100 January
Started byBonsai
The current month's trading diary for the UK index.
Indices Page
Started bynigelpm
A great quick reference guide to some of the main indices, set up voluntarily by nigelpm.
Options Trading Thread
Started byMorris
A good introduction to the world of options with some more useful links.
------------------------------------------------------------------
AMEX
The American Exchange
ASX
Australian Stock Exchange
Borse
European name for Exchange
CBOE
Chicago Board of Options Exchange
CBOT
Chicago Board of Trade
CME
Chicago Mercantile Exchange
LIFFE
London International Financial Futures and Options Exchange
LME
London Metal Exchange
LSE
London Stock Exchange
Nasdaq
National Association of Securities Dealers Automated Quotation system
NYSE
New York Stock Exchange
NZX
New Zealand Stock Exchange
------------------------------------------------------------------
-------------------------------------
Basic Trading Information
An introduction to Spread Betting
Investment Information
An introduction to Exchange Traded Funds
Commitments of Traders
Useful information relating to outstanding contracts on the US Exchanges
-------------------------------------
Trading in the Zone
By Mark Douglas
Amazon
Reminiscences of a Stock Operator
By Edwin Lefevre
Amazon
Trade2Win Bookstore
-------------------------------------
Spread Bet Companies
There are several spread bet companies, offering all kinds of products and spreads, varying from “Binary Bets” on FTSE or Daily Dow, through to futures spreads on the indices for several months ahead. Due to the nature of taxation laws in the UK, you are currently not taxed on any profits your make (tax legislation in the UK can of course change without notice).
IG Index
Deal4Free
Finspreads
Capital Spreads
TradIndex
City Index
Direct Access Brokers
Direct Access brokers cut out the middle man, and allow you to deal more closely with your chosen exchange, speeding up trade execution times and opening up a wider variety of products to trade. The downside is that you will pay commission and taxes on your profits - unlike Spread betting - although there is no spread involved.
Interactive Brokers
GNI Touch
Last edited:
