What Are Stock Indexes? (Part II)

By Ahmad Hassam

Modified capitalization weighting involves adjustments to the capitalizations of the various component issues of the Nasdaq-100 index. The NDX contract at the CBOE is based on Nasdaq-100 as is the MNX. The Nasdaq-100 is a modified capitalization weighted index.

Frank Russell Company is one of the leading global investment consultants. It is also involved in performance measurement, analysis and investment management. Russell 2000 is the well known benchmark for small capitalization sector. Several Russell Indexes have become benchmarks for specific areas of investment management.

Russell 3000 Index as the name implies includes 3000 issues and is adjusted for certain factors such as cross holdings and the number of pairs in hands. These 3000 companies represent 98% of the US investable equities.

Russell 3000 is further split into subsets like Russell 1000 Index. It covers the top 1000 about 92% of the value of the entire 3,000 stock index. The Russell 2000 Index is the smallest 2000 companies in the Russell 3000 Index.

From the business point of view, the Wall Street Journal is probably one of the most perfect business franchises. A franchise that is very hard to duplicate. The net worth of most of its readers is in seven figures. Dow Jones is the publisher of this journal.

Dow Jones Industrial Average (DJIA) comprising 12 smokestack companies made its debut in the year 1896. Over the year DJIA became an important business barometer and grew to encompass 30 large industrial companies.

The DJIA is still one of the worlds best known stock measures. It consists of 30 largest and most liquid blue chip stocks in the US. The average is maintained by the editors of the Wall Street Journal.

The DJIA unlike the S&P 500, Nasdaq-100 or Russell 3000 Indexes is a price weighted average. Recently Microsoft and Intel were added to the DJIA. The highest price issues hold the most influence over the average.

A 1 percent move in a $90 Microsoft (MSFT) stock would have a greater impact than a 1 percent move in a $30 Intel stock on DJIA as compared on the S&P 500. ETFs exit on many Dow Indexes like the DJIA, the Dow Jones Global Titan Index, the Dow Jones Total Market Index, and various sector indexes.

Wilshire serves over 400 organizations in over 20 countries representing over $2 trillion in assets. Wilshire flagship index is the Wilshire 5000 Total Market Index.

It represents the broadest index for the US equity markets. Over the years, it has increased to 6500 issues representing the increase in the number of companies in the US.

The Morgan Stanley Capital International (MSCI) database contains nearly 25,000 securities. This database covers equities in 50 countries and one of the advantages of MCSI and its foreign indexes is consistency. MSCI calculates nearly 3,000 indexes daily and services a client base of over 1,200 worldwide. - 23309

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and forex. Do Penny Stock Trading. Learn Forex Trading!

The Basic Facts Of Currency Exchange

By Jerry Barr

Forex is the name given to the foreign exchange market. This market exchanges currency between nations permitting companies in one country to pay for goods and services in another. This helps world trade and investments. If you are traveling to Europe, you go to your bank and exchange bucks for euros so you have money to spend on your trip. Your bank bundles this exchange with others and then exchanges the dollars for Euro Bucks through currency exchange.

The forex market has no physical location and is open for business twenty-four hours a day between Mon. morning in New Zealand thru Friday night in Asia. The average trading volume is over 3 trillion dollars a day. Profit markups are relatively low.

Traders on the forex market include central banks, enormous banks, companies, governments and currency investors. Tiny speculators do not trade in the particular currency market, but essentially trade through derivatives called futures contracts. Futures contracts are not legal in all nations, particularly emerging countries. Futures contracts account for roughly 7% of the total trading volume.

The smaller investors don't trade in the actual currencies, they trade in derivatives, sort of like the commodities market. Tiny investors make up about 7% of the total trading volume.

The market is divided into tiers, with the ten traders who do the most trading in the top tier. These are the big world banks. The margins here are tiny and the rate between the bid and ask prices are available only to this select group. This accounts for roughly 53% of the trade volume. The following tier of financiers includes large hedge funds, investment banks and global corporations.

Lots of the transactions, about 70%, are of a speculative nature. That is, they are done in the hopes of earning a return rather than an exchange for practical use. Average financiers can only gain access to this market thru a foreign exchange foreign exchange broker. Until fairly recently, their were very few restrictions on the practices of the brokers. There is an ongoing effort to break down and eliminate brokers who take trades that are in clash with the best interests of their clients.

Forex is a high hopeful market. During times of market doubt, traders will jump to historically "safe" or stable currencies like the Swiss franc. This drives the rate of exchange up for the franc in comparison to other currencies.

There are many types of derivatives with assorted levels of risk available to little investors. The most typical derivative is the futures contract which is often for three months. It is comparable to futures contacts traded on the commodities market. The spot contract is a futures contract for a brief period of time, usually 2 days. The forward contract helps limit risk as the money is exchanged on an agreed on date in the future. One type of forward contract is called a swap, where the 2 parties exchange currency for an agreed upon period. The safest derivative is the currency exchange option. Somewhat like a stock option, it gives the holder the right to exchange currency for a formerly agreed rate at a fixed upon date, but the holder has no need to make the exchange.

The forex market can be lucrative and has far more liquidity than other investments. Backers wishing to enter this market should check with other investors to locate a credible broker. Its wise, as with any investment stradegy, to do you homework and learn as much about the market as possible. It could be a awfully equitable investment for the clever trader and you can get your money when you need it. - 23309

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