Stock exchanges and stock indices

Stock exchanges and stock indices

In the previous chapter we discussed the pros and cons of the stock market to the foreign exchange market . Many of you have come to believe that the stock market is in many ways inferior to foreign exchange . In the first section of Forex School we mentioned that a full understanding of the Forex market is not possible without having to learn all the structures that affect its performance. A more detailed study of the stock market will help you to extend the knowledge gained about the Forex market.

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In this chapter, we will look at the process of the formation of the stock indices . But before that, let us recall briefly what we discussed in the previous chapter. We learned that in the stock market instead of foreign currency , the process of buying and selling securities. Securities issued by companies and corporations in order to raise money in their funds . In another way , these companies and corporations are called issuers. If you buy a security, then you become an investor , that is, how to invest your funds in the development of the issuer for the purpose of receiving dividends from its activities. Intermediaries between the investor and the company issuers are the brokers . Brokers help investors find other issuers , that is, brokers provide services to promote the securities market , followed by buying their investors .

Stock exchanges and stock indices

For their services brokers take Brokerage ( percentage ) of the transactions. The venue for transactions appear stock markets , these include the stock exchanges on which there is a real trade, and off-exchange trading systems that allow traders to trade without leaving your computer screen and not getting off the couch, that is, using the familiar trade terminal. It is also necessary to mention the registrar of trading. Registrar of trading accounts for issuing companies and their investors , that is, the receptionist is a database that contains a list of all issuing companies issuing securities , as well as a list of their investors. Taking into account the portfolio of every investor is engaged in a depositary, which stores all of the purchased securities . Almost all of the operations on the stock market, are carried out under the control of various government agencies settlement , as well as information and advisory organizations.

The greatest volume of trading takes place on 2 stock exchanges , both of which are located in the United States is:

NASDAQ-AMEX. This trading platform is a combination of off-exchange platforms NASDAQ (National Association of Securities Dealers Automated Quotations) and the Stock Exchange AMEX (American Stock Exchange);

NYSE (New York Stock Exchange) .
It is also necessary to mention:
LSE (London Stock Exchange)
DB (Deutsche Boerse)
TSE (Tokyo Stock Exchange)
SEHK (Stock Exchange Hong Kong)

Next we will try to establish a link between the stock market and the Forex market . From the previous chapters, we have learned that the price of the currency depends on the economic state of the country. The economy of each state is based on an analysis of the gross domestic product ( GDP). Gross profit is the difference between the proceeds from the sale of finished products and production costs , among which are included the costs associated with the cost of trade. All these indicators reflect the profitability of companies. Accordingly, the stock prices are rising profitable companies . In the stock market, companies operating in key sectors directly reflect the state’s economy , as with the increase of the gross national product is stabilized and the exchange rate on the foreign market . Shares of companies representing key sectors of the national economy determine the state of the stock market.

From all of the above is necessary to understand that the better performance of the issuer , the higher price for their shares , therefore, on the quality of work of their country’s GDP is growing . The higher the GDP , the better the economic condition of the country, and this implies that the currency of that country will rise.
Still , the main question remains – how did correctly identify the economic condition of a country on its stock market? For this purpose, stock indices .

Stock indices – a special performance of a single country , which shows its economic state as a whole. Each stock index corresponds to a trading floor , and is calculated based on the total value of stocks included in the index calculation base its trading floor .

For each stock area there may be several stock market indices that are most approximately reflect the economic situation of her country . Below we highlight the major stock indexes for each country.
USA
NASDAQ Composite (National Association of Securities Dealers Automated Quotations);
DJIA (Dow Jones Industrial Average – the Dow);
S&P 500 (Standard and Poor’s 500 Index).
Japan
Nikkei 225
United Kingdom
FTSE-100 (Financial Times Stock Exchange 100 Index)
France
CAC 40 (Compagnie des Agent de Change 40 Index)
Switzerland
SMI (Swiss Market Index)
Germany
DAX (Deutscher Aktienindex)
Russia
RTSI (RTS Index)
Based on the value of the stock index to judge the rise or fall of the national currency against which the index is calculated.

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