It is difficult to imagine a modern economy without financial markets. They allow you to redistribute money so that they bring maximum benefits to the whole society. The stock market as one of the sectors of the financial market allows you to redistribute cash and form investments through securities. Every year their importance in different countries is growing rapidly. Therefore, it is extremely important to be able to analyze the state of stock markets. This will explain the current economic situation and predict what awaits the economy of a country in the future. For this, special indicators of the stock market, which are called stock indices, were created.
Definition of a concept
Currently, thousands of different stocks are traded daily on the stock exchange. To analyze the current state of the market as a whole, a stock index of stocks was created. This indicator summarizes the current state of a particular stock portfolio. Changing the stock index over time shows the general direction of market development. This is true, including in cases where inside the portfolio, stock prices change in different ways.
For the first time, the term stock index was used by Charles Dow, who owns the idea. Dow Jones Index Industrial Average), which includes the shares of the 30 largest US industrial companies.
The calculation of this indicator, as a rule, occurs by dividing the average weighted stock prices of a certain number of enterprises by a certain fixed coefficient, which is called the divisor. It, in turn, is chosen so that on the base date of calculating the index, its value is equal to some base (convenient for calculation in this case) value. It is also customary to “weigh”, that is, the shares of large and influential companies to attach more weight and, as a result, a significant impact on the index.
Russian stock indices
The main ones on the Moscow Exchange are the MICEX and RTS indices. Their values determine the weighted prices of the most liquid shares of the fifty largest developing Russian issuing companies. Among them are such giants as Gazprom, Sberbank, LUKoil and others. The MICEX index differs from the RTS in the calculation method. Moreover, the MICEX is calculated in rubles, and the RTS - in dollars.
In addition to the two main indices on the Moscow Exchange there are the following:
- The MICEX Index 10, it is also called “blue chips” due to the fact that the most liquid stocks of the first 10 largest Russian companies are used to calculate this indicator. In contrast to the ordinary MICEX, in this case, the prices of companies are not weighted depending on the market capitalization of companies and are calculated by the arithmetic average of the prices of all shares.
- MICEX Corporate Bonds Index. Exists since 2003. It is calculated as the sum of the bonds of corporate issuers traded on the Moscow Stock Exchange, weighted by the volume of the issue.
Next will be considered key global stock indices.
USA
You should start with the Dow Johnson index, which was already mentioned earlier. It characterizes the largest industrial companies US stock market. The Dow Jones Index is calculated based on stock prices of companies such as Microsoft, IBM, Procter & Gamble, Coca-Cola, General Motors, McDonald's and others. Some experts tend to criticize this indicator due to too simple a method of calculating it (a simple arithmetic average of stock prices of 30 companies), too few stocks.However, despite this, due to its simplicity again, it is the most popular not only in the United States, but throughout the world.
It is also worth noting the S&P 500 index (or the “broad market” indicator). When calculating it, stock prices of five hundred US companies with the highest capitalization are used. Standard & Poor’s 500 can be considered an objective reflection of the entire US market, as the index affects companies from all the most popular sectors of the US economy.
Another important indicator of economic development is the NASDAQ group of US indices. The most important in it are the NASDAQ Composite, for the calculation of which the share prices of all listed companies are accepted, and the NASDAQ 100, which includes quotes of 100 companies in high-tech industries.
European stock indices
Other global stock indices are concentrated in three financial centers in Europe: in London, Paris and Frankfurt. Among them:
- Stoxx 600 stock index. It is calculated based on the value of shares of 600 companies from 18 European countries.
- One of the most influential European stock market indices and the main one on the London Stock Exchange is the FTSE 100. This indicator is calculated taking into account the cost of securities of the 100 companies with the highest capitalization (mainly innovative industries).
- The main French stock index is CAC 40, which takes into account the stock prices of 40 of the largest companies listed on the Paris Stock Exchange. Among the industries considered are banks, hotels, heavy industry, aerospace and telecommunications industries. The most famous companies: L’OREAL, Credit Agricole, Renault, BNP Paribas.
- The leading German index is considered DAX. For its calculation, the prices of 30 largest companies of various industries are used. Among them are such as BMW, VW, Henkel, Commerzbank, Adidas, D&G.
Asian stock indices
One of Japan’s key stock indicators is the Nikkei 225. Blue chips are taken into account, that is, companies whose shares on the Tokyo Stock Exchange are most actively traded. Moreover, the list of such companies is reviewed annually.
Tokyo Stock Exchange is not based on a single indicator. So, another no less important is the Topix index. This indicator is calculated as the average value of stocks weighted by market capitalization of the largest companies on the Tokyo Stock Exchange.
The leading index on the Korean Stock Exchange is KOSPI. When calculating it, quotes of all South Korean companies listed on the stock exchange (excluding preferred shares) are taken into account.
The most important Chinese stock index, Hang Seng, includes the stock prices of 34 of China's largest capitalization companies. Among the predominant industries - finance, energy, real estate, the composition also includes diversified corporations.
How to use indexes
From the previous sections it became known that there are dozens or even hundreds of different indexes in the world, many of which are actively used by economic analysts, traders, etc. Any of them can be useful, since it is designed to perform a specific task. In order to use stock indices productively, you need to know which stocks of which companies are taken as the basis for their calculation. This knowledge will make it possible to more accurately understand and interpret the information that this or that indicator and its numerical change carry.
Thus, the main stock indices are currently used for a number of reasons. Firstly, they serve as some indicators that allow us to present the general dynamics of stock prices of certain groups of companies, industries or countries. As a rule, such data is used for speculative operations on stock exchanges. Secondly, a change in indices serves as an indicator of investor sentiment. If the change in the indices is positive, then they are optimistic about the prospects for investing shares participating in the calculation of a particular index. Thirdly, long-term monitoring of changes in the values of indicators, for example, of a particular country, helps to create an idea of the investment climate that has developed there.
Stock market game
Today you can hear many stories about how the game on the exchange enriched a person.However, the remaining 90% of failed players are in no hurry to talk about their failure. The reason is that specialized books and consultants convince newcomers: the exchange is very simple. But, as practice shows, this is not at all true. Just understanding the mechanism of buying and selling shares is not enough. Also, you can not use the ready-made instructions of other "professionals". The stock market is constantly changing and developing more unpredictably, therefore, after some time, current recommendations today will not provide the same result.
The game itself is an exchange trading in stocks that are issued by various companies to attract investment. The following is an example of the sequence of such a game.
First you need to find a bona fide broker, open an account, make a down payment and install a special program for online transactions. Further, the trader monitors stock index quotes and the situation on the exchange using the program. If there is a desire to buy shares of a certain company, he creates an application on the stock exchange. If there is a suitable counter order for sale, then a deal is made. Further, data on the buyer's right to purchased shares are reflected in the broker's depository. If the purchased assets rise in price, they can be sold profitably and trading can continue.
Game strategies
The stock exchange is a very complex mechanism. Important in the game on the stock market is not only the number of profitable transactions, but also the minimization of losses from unprofitable transactions, which almost no one can avoid. There are several strategies for this:
- Investment strategy. It implies such a game on the stock exchange, which involves the formation of a certain portfolio of stocks, which grew in price some time later. It is estimated that they will continue to grow in the future. In this case, making a profit is ensured by dividends and an increase in the market value of securities.
- Strategy for following the trend. It may seem the simplest. Entrance to the position is made during the formation of the desired trend. However, with this strategy, you need to be able to get out of position in time when the current trend weakens.
- Counter trending strategy. It implies the purchase of shares, the price of which is currently falling, in order to subsequently sell the share with profit when it grows.
- Strategy game on the news. In this case, it implies an instant reaction to the appearance of any information relating to the company whose shares are of interest to the trader.
- Pattern Strategy. In this case, charts of past changes in stock prices are monitored, an analogy with the current trend is made, and an attempt is made to win back this dynamics.
If the use of a particular strategy leads to a negative result, it is reviewed. Trading should not be compared with the lottery, because in order to trade on the exchange, you must be able to control yourself and learn from your own experience.
In addition to stocks on the stock market, other securities may also be sold. Their types will be discussed later.
What are the securities
There are currently three groups of securities.
The first group includes stocks. They are issued by companies (issuers) to attract investment. The owner of a share (shareholder) is entitled to receive a share of the issuer's profit in the form of dividends. Shares are divided into ordinary and preferred. The owner of the former has the right to receive dividends from the issuer's profit and to vote. Their disadvantage for the shareholder is that the issuing company can have an unlimited number of ordinary shares, which reduces dividends, and the issuer can direct the profit received not to pay dividends, but to develop production. Preferred shares do not give voting rights, but dividends paid on them are a fixed amount and are accrued in the first place.
Bonds belong to the second group of securities. They confirm the issuer's obligation to pay the owner (investor) of the bond a predetermined amount and interest at a specified time in the future.
There are still special securities. Among them is a bill of exchange, derivative, savings certificates other.
What are futures
In addition to securities, derivative financial instruments exist. These include futures. It represents an obligation to sell or buy a basic (predetermined) asset in a certain future at a predetermined price. The stock exchange in this case acts as a guarantor of the transaction by creating insurance deposits with its participants. Financial risk insurance is called hedging.
The following may serve as underlying assets: stocks (stock futures), currency (currency futures), commodities (commodity, for example), interest rates (interest futures) and stock indices (index futures).
Futures is a liquid financial instrument, it is often used by already experienced traders and investors to extract additional profit. However, it is characterized by instability and, as a consequence, high risk.
With due date futures contract There may be several outcomes. Thus, the financial balance of the parties involved may not change, but may increase for one merchant and decrease for another. If the futures price has exceeded a predetermined one, then the buyer will benefit. If the current amount is less, then the seller remains the winner.
The indices described in this article are not exhaustive tools for traders and financial analysts. However, they can be relied upon to describe the current economic situation.
