Stock Market Indices

A stock market index is a compound indicator used to estimate the behavior of a group of shares and then, on the basis of these estimations, to evaluate those global processes that take place on the equity market. As a rule, the absolute value of the stock market index is of little value for analytics. Showing the change in prices for a group of securities, commodities or derivatives, a stock market index is particularly interesting to analysts when they watch its dynamics: the direction of the market movement is particularly estimated on the basis of the index dynamics within the period of time. Moreover, the share prices in a selected group may change in different ways. Stock market indices allow you to get the expression of the changes in a separate chosen section or on the total market depending on the chosen indicators.

The first-priority purpose of the futures market is the hedging of risks (loss of income insurance), related to any assets or investment. The popularity of trade based on stock market indices is first of all caused by the binding to the stock exchange market.

The value of a stock market index is based on the prices of all the shares that comprise the index and that are traded on this particular stock exchange. That’s why creating a diverse portfolio of investment into shares, a stock market index is considered a good decision. An index, that cannot be purchases as a property, does not become the object of insurance and speculative operations itself, but the alterations of the index value do (a price is set for every point in index alteration).

As a rule, the quantity of shares that make part of a particular index is equal to the number given at the end of the index name. Russell 2000, S&P 500, Nikkei 225, FTSE 100, NASDAQ 100, DJ Euro STOXX 50, CAC 40, DAX 30.
As you can see, index value alterations reflect the dynamics in the prices of dozens or hundreds of shares. Today there are more than two thousand different stock market indices in circulation, we can specify the most popular ones among them: Dow Jones, DAX, Nikkei, NASDAQ, RTS, Standard & Poor’s 500, FTSE.

Dow Jones Industrial Average (DJIA)

The stock market index DJIA (Dow Jones Industrial Average) – is one of the most popular indices in the world. For the first time it was used more than a hundred years ago. Of course, a lot has changed during that period: the quantity of shares that comprise it and the list of enterprises which shares were initially used. Moreover, only a couple of companies are left from those that were considered powerful in the nineteenth century.

The quantity of the index components in the course of 100 years was as follows: in 1896 the index was calculated on the basis of the share prices of a dozen of enterprises, in 1916 – on the basis of twenty enterprises, and since 1928 the index has been calculated on the basis of the share prices of thirty enterprises. The average of the share prices of these largest USA companies is also called blue chips, and it represents a famous index Dow Jones Industrial Average.

By: Mathew Durham

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I`m a professional analyst in the Fxlot LLC, major in forex signals. In the articles to come I will describe some of my trading systems I use in the daily work.