What indices mean? indices vs indexes which is correct?

We often read on many websites about economics and finance about indices, but maybe many of us do not understand, what indices mean?

There are many types of financial assets being traded through online trading platforms.

One of the most popular online tradings is a foreign exchange (forex).

However, forex is not the only type of prospective asset.

Besides forex, indices/indexes trading is also known.

Indexes trading can be learned as well as learning forex.

But what indices mean?

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Indices definition

what is indices mean

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The meaning of indices in financial markets is certainly different from the indices, in the book literature.

Indices in a book’s literature is an important term or list of words in a book.

Arranged alphabetically where this term or word has information about that page found.

Or in other words, an index is a list of words or it can be a phrase where the word is related to instructions on material found in the document.

Indices on the financial market are the combined prices of various shares.

Based on certain categories on the stock market that can describe the overall market conditions.

The first indices in the world are the Dow Index created by Charles Dow in May 1896 which contains the stock prices of the 12 largest public companies in the United States.

These indexes have now become the Dow Jones Industrial Average (DJIA) which contains the 30 largest and most influential companies in America.

There are still many indexes besides DJIA.

Because in every stock market in one country there can be many indexes, each of which has a different category.

The Standard & Poor’s 500 Index (S&P 500) is also from the United States, containing about 70% of preferred shares from the stock exchange.

Then there are the NASDAQ indexes, which mainly consist of leading stocks in the technology sector.

DJIA, S & P500 and NASDAQ also vary in pricing.

How to calculate indices

what indices mean

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How to calculate indices?

Each index has a different method of calculation, starting from the simplest to the most complex.

For example, the Dow Index was originally calculated only by adding stock prices from 12 companies, so the average value was taken.

Now the development of technology currently provides ease of calculation.

After the calculation can be done automatically by a computer.

How to calculate the index by weighting prices more complexly in order to calculate the stock price and the company’s capitalization at the same time.

The meaning of capitalization (market value) itself is the current stock price multiplied by the number of shares outstanding.

Example of how to calculate using price weighting in the formation of index numbers:

If the total market capitalization of a company is $ 1 million and the overall market value of the shares of various companies in an index is $ 100 million, then that company contributes as much as 1% to the index.

If there are other companies worth $ 10 million, then the company can weigh 10% of the index.

This is just a simple example because the weighting method in making each index must be unique.

Indices by country

what indices mean

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In many countries, each has indexes, and many have traded indexes for profit, as well as trading on forex.

Almost all countries have their respective indices, the largest being from the United States.

Indexes can be traded by anyone, without having to be registered as an investor in a particular country’s stock market.

This means that even if you are in Malaysia for example.

You can also trade indices issued by a particular country, even though you are not registered as an investor in that country.

There is only one requirement to eligible, that is, you must join a broker that provides indices trading facilities.

One of them is TenkoFX

Here are some popular indexes that are traded by many traders.

  • DJIA or Dow Jones Industrial Average (United States)
  • S&P 500  or Standard & Poor’s 500 (United States)
  • Nasdaq Composite (United States)
  • FTSE 100 (United Kingdom)
  • NIKKEI  (Japan)
  • Hangseng (Hong Kong)
  • Kospi (Korea)

And many more list of indices in each country, you can read it on Wikipedia.

Index trading is also similar to forex trading, you can learn forex lessons as a basic analysis for trading indices.

How to get profit is the same, that is, Buy if the price will rise (uptrend), or Sell if the price drops (downtrend).

The trading platform and technical indicators used for market analysis are the same.

You can trade indices via the Metatrader platform too.

It’s just that the position size rules and forex trading times and indices are different because the stock market has more limited operating time than forex.

If you can trade forex for 24 hours from Monday to Friday.

But if you trade indices, for example, choosing DJIA, then it can only be done during the opening hours of the US stock exchange only.

Benefit indices for the trader

what is indices mean

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There are many different ways that forex traders make profits from trading currencies, both using technical analysis and also using fundamental analysis.

It turns out that some traders also take advantage of changes in the price of indices as a reference for trading on the currency that issued the indices.

For example, by looking at changes in the US Dollar Index (DXY).

If the US Dollar Index rises, it means the US Dollar is likely to strengthen (bullish).

Conversely, when the US Dollar Index falls, it means the US Dollar exchange rate is weakening (bearish) against most other currencies.

Why do traders use these changing data indices?

Because the US Dollar Index is a weighting of the exchange rate of the US Dollar against a group of other currencies (Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, and Swedish Krona).

Many forex traders, especially those who focus on fundamental analysis.

They monitor the United States stock index because it is considered as an indicator of risk appetite.

Stocks indices are considered as high-risk assets, as opposed to assets that are considered low risks (safe haven) such as gold, Japanese Yen, and Swiss Franc.

When the DJIA, Nasdaq and S & P500 stock indices both increase over a certain period of time, it means that the market tends to take the high-risk asset.

At the same time, the price of gold, Japanese Yen and Swiss Franc is likely to weaken.

Conversely, when the US stock indices weaken, the prices of these low-risk assets will actually increase.

Indices value for the investor

Many investors in the stock market also pay attention to changes in the value of indices as their consideration for buying shares.

Investors stocks will always monitor changes in the DJIA index, Hang Seng, and various stock indices from other leading exchanges.

Often the market moves in harmony.

If the US stock index today down, the Asian stock indices on the following trading day will also decline.

Although it is not certain to occur every day, correlation tends to be unidirectional in the medium term.

The movement of stock indices can also give an early signal before the recession.

For example as happened during the Great Depression and the 2008/2009 financial crisis, as well as when the recovery of economic conditions began.

Indices vs indexes, which correct?

indices vs indexes

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Maybe you often read on financial news portals that write the words “indices” and “indexes”, and this can be confusing with these two words which are correct?

Both are the plural of the word “index”, the difference is the word “indices” is the Latin plural.

While “indexes” is a plural form of English, although both have the same meaning, their use is actually different.

Indices refer to uses for mathematics, science, and statistics, while indexes refer to the use of written documents such as bibliography.

But over time, the use of the word “indices” exceeds the word “indexes”, so that this Latin plural occupies the search with an average higher than “indexes”

According to Google data, searches with the word “indices” are higher than the word “indexes”

indices vs indexes

Indices vs indexes which is correct?

The two words are accepted words for the plural form, from the index base words.

You can use any word to adjust to relevant topics.

In some mathematical contexts, indices are the preferred form.

In formal writing arrangements that are not related to mathematics, indexes may be a better choice.

Because the singular form is an index.

You can easily link the singular and plural forms of this noun to remember which version to use.

Final Thought

What indices mean? indices vs indexes which is correct?

Index trading is another way to get profit from world financial markets.

Some brokers have provided indices trading facilities through their trading platforms, you can take advantage of these facilities if you have an interest in index trading.

You do not need to come to the exchange, but by utilizing broker facilities through their trading platform, you can trade index from home.

If you have learned the basics of forex technical analysis, you can apply to indices trading.

Are you interested? please try good luck.

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