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

FTSE500France:

CAC40

China:

SSE Composite Index

Hong Kong:

Hang Seng Index

India

Bombay Stock Exchange

Japan:

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 divisorWhich is in this case 0.122834016.After dividing 1545.32/0.122834016 = 12580.55 which is the value appearing on the market.

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).

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

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.

Forex Tips:

Know yourself!

If you want to trade in a company you need to know if you and the company match. For example if you as a customer want to trade in a bus company you need to figure out yourself how often do you take the bus. You need to know as many information possible about the business and if it suits to your lifestyle and your friend’s lifestyle.

The help of an experienced trader:

www.forextradealert.info (for example)

The help of an experienced trader could be really useful to begin with in trading.

Two ways of trading:

-Watching during few minutes or few hours the market through a computer during the day.

- Other prefers to check their trade during regular intervals.

This is why it is important to know yourself!

Because some people can’t stand watching the market moving up and down but others enjoy watching it and can’t think about a different way for trading.

THE PERFECT STRATEGY DOESN’T EXIST!

In fact, for each trade there are many different strategies, which could be at the same time good for one trade and bad for the other one.

Example of few strategies:

- With clearly defined criteria and check with your list if it’s fit.

- Identifying through graphs.- A good strategy is the one, which avoid the guesswork.- A good strategy should clearly define stop loss and profit

targets.- You need to know every risk for each trade.

Stay Disciplined!

When you fix an objective for example checking the market every 2 hours then you need to follow it.

Successful trader make as well loss but they are disciplined and this is why they make profit overall.

The emotions can play tricks on you and do not let you what to do.

The key is to follow your strategy and not what you mind say to you.

A profitable trade is buying a currency or share and hoping to sell it later at a higher currency and then buy it back cheaper at a later stage

Forex units are the pips, its 0.0001 change that is the smallest quoted unit.

IF you are prepared to risk 50 pips maximum, then you can set an automatic order to close the position should the price fall by 50 pips! It is called a Stop Loss order!

When you set a profit target it is called a Profit Limit Order.

Some vocabulary:

When traders think that a currency will increase they are said to be ”bullish”

If traders think negatively then they are said to be “bearish”

How to trade in Forex:

In forex you are always comparing one currency to another, forex is in fact quoted in pairs. The first currency in a currency pair is the “base currency”, the second currency is the “counter currency”. For example if you are bearish of euros (think it will decrease) you could sell EUR/USD but you are not only selling euros but buying US dollars as well.

So if you buy a pair, up is good, if you sell it down is good.

What is leverage?

A leverage allow you to trade with 10 000 pound in the market by setting aside only 2000 pound as a security deposit. It means that you can take advantage of even the smallest movements in currencies by controlling more money in the market than you have in your account.

It can increase considerably your profits but as well increase your loss.

Start trading with small amount is the best to do not take too much risk

How do you know which currencies will rise and will fall?

Fundamental Analysis: You need to look at supply and demand. This is called fundamental analysis. Interest rates, economic growth, employment, inflation, and political risk are all factors that can affect supply and demand for currencies.

Technical Analysis: Price charts tell many stories and most forex traders depend on them in making their trading decisions. Chart can point out trends and important price points where traders can enter or exit the market, if you know how to read them.

Money management: an essential part of trading. All traders need to know how to measure their potential risks and rewards and use this to judge entries, exits and trade size.

The risk management:

Before entering a trade you need to know how many pips are risked and exactly the amount, which is risked in monetary terms.

Mostly, any professional trader risk more than 1-2% of their trading account on any one trade.

To become a successful forex trader you must learn how to manage risk in priority.

The winning attitude:

Unrealistic people just quit because people fail to make consistent profits in forex.

The truth about trading is you will have many losing trades and to be profitable you need strong risk management!

A winning attitude recognizes small gains over time are better.

It is easy after a string of successful trades to be tempted to increase your trade size but it could be really dangerous and could be out of money.

Three different strategies:

The first one is called the “News Fade”. You need to go online and check the events. Each events has a particular impact on the currency and from that you can take notes and write down the impact of each events on the

Develop a safety!

You need to look in the monitor how you are doing and criticize yourself.

You can use an excel spreadsheet and put for each column a trading strategy.

You can note the trade time, currency, set up time, the risk ratio how the trade progressed and how it was concluded.

Enjoy!

Trading is basically changing all the time, no one knows all about trading and the advantage is that you can always improve your trading.