Index – is a figure that depicts a particular “behavior” of the market at a certain period of time. Indexes are “free” indicators which demonstrate dynamics in price changes on the market separately from security papers. When trader’s expectations are positive, he/she gets shares and a dollar decreases. Yet in case of negative expectations, a trader should direct their investments in government bonds thus strengthening the dollar.
What are Indexes for?
A well-known fact that all traders, at all times, try to get high profit under minimum risk. For this, they have special strategies and concepts which they use in both favorable and unfavorable conditions.
An interest to state securities is rising as soon as there are even minor signs of economical decrease. The reason for that is very simple – this instrument has a unique possibility to include large amounts of money without high risk of their depreciation. As soon as the increasing tendency appears, the money is slowly moving to shares/stocks again because they can bring more profit yet more risk too.
All these manipulations affect the stock indexes as well as foreign currency exchange. One way or another, indexes are more characterized by its dynamics (fluctuations, increase or decrease, stability etc) rather than value.
How Indexes are Calculated
It will be easier to understand dynamics of indexes on the Forex market, if simple rules of their calculations are mentioned. Ways of calculations vary:
- Dow-Jones Index – is used for calculating an arithmetic average of stock pricing in commercial sphere especially if some serious changes in Forex market are happening;
- S&P 500 (Standard and Poor’s Stock Price Index) – is used for calculating a weighed arithmetic average depending on stocks, general price etc.
- NYSE Composite Index – during calculation, this kind of index takes into account wider range of stock pricing/equity price comparing with the previous two. One more positive feature of NYSE Composite Index – it calculates the price of securities in Stock Exchange.
- Wilshire 5000 / Russel 3000 – the most widely-used types of indexes on Forex. Only these two indexes are always published in the latest financial newspapers. They are so “popular” because only they estimate an exact condition of all stocks as well as show the most accurate condition of the U.S market.