Quick FX Trader Guide To Equities
Equities are a great source of gauging the market's risk appetite. This video is a quick FX trader's guide to understanding major equities.
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We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
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Now we have quick question here from Kevin asking why exactly some equity markets sometimes move in congruently. And we also had a question in today's webinar from Nick, asking why we can sometimes choose one index above another.
And the most common answer, Kevin and Nick with regards to these type of questions can be found by looking under the hood of some of the equity indexes and understanding their composition.
Now, I mean, this video, we won't have time to go over each and every one of the single indexes but what we will do is we will go over the most important parts to look for with a couple of practical examples and then once you know the process that we use for looking at them, you can obviously you know, I encourage you to do your own research on those major equities through the lens of this video in this process, as it will help you to better understand how these equities move and why. Now the first thing to consider or understand about indexes are that they they simply track stocks, right?
It's a share index or stock index. And so it's basically just a bunch of stocks piled together to track how an economy or particular sector of the economy is doing. So when we strip away all the, let's call it the fluff and get down to the bare bones, there's essentially only three things that we need to know about each index, namely, what is the country that it represents? What is the sector waiting for the index? And then what is the top, let's say three or five or 10 companies, depending on how the index is weighted? For example, looking at the top three US equity indexes, of course, everybody will know the S&P 500, the Dow Jones 30, and the NASDAQ 100. Now the number in each of the names basically represents the amount of companies in the index.
But keep in mind, some companies might have dual listings like Google, for example, you'll have Google, you'll have Alphabet, which means that they might be 101 or 102 stocks, actually in something like the NASDAQ 100. Now, what we do or what we need to know about these three things, we can go back to that list of three things.
So firstly, what country do they represent? Of course, these three represent the United States and companies in the US.
And let's go to the second one, what is the sector waiting? Now, going down to the granular level and knowing the entire index composition is really just not that important. Knowing the let's say the top one or two or three sectors, depending on the size obviously, is usually enough for us to know. So looking at something like the NASDAQ, for example, it's got a very ITO technology heavy weighting as sitting at almost 50% of the index, which is followed by a consumer services at 20%. So very tech heavy index with the top five names being Microsoft, Apple, Amazon, Google and Facebook. And of those five names the first three make up over 30% of the index itself. So the index is very sensitive towards to regarding the tech sector and it is market capitalization weighted.
So it means that those five companies or six companies can make up the vast majority of the overall index. So if we see a big move in the technology sector, for example, or just in one of these five names, we can expect the index to be affected. So if you have massive news coming out about Facebook, for example, or Apple, or Amazon, you can expect that to affect the NASDAQ. And you can expect that to affect something like the NASDAQ more than the Dow Jones just as an example.
So any big divergence in some sectors can see different impacts in the equities. So looking at the NASDAQ, another important thing to remember is that the NASDAQ doesn't have any financials or oil and gas names. So any big divergences in oil and gas names might affect the S&P, but it might not necessarily affect the NASDAQ.
***For more detail please watch the video or go to www.forexsource.co
So knowing what might affect these indexes is helpful and to us as FX traders, because it can give us some context as to why certain markets are moving the way they do and whether that sentiment that is driving and is being an important enough to spill over into the overall equity markets and of course ultimately affect the various asset classes if we see strong risk on and risk of flow.
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If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
Now we have quick question here from Kevin asking why exactly some equity markets sometimes move in congruently. And we also had a question in today's webinar from Nick, asking why we can sometimes choose one index above another.
And the most common answer, Kevin and Nick with regards to these type of questions can be found by looking under the hood of some of the equity indexes and understanding their composition.
Now, I mean, this video, we won't have time to go over each and every one of the single indexes but what we will do is we will go over the most important parts to look for with a couple of practical examples and then once you know the process that we use for looking at them, you can obviously you know, I encourage you to do your own research on those major equities through the lens of this video in this process, as it will help you to better understand how these equities move and why. Now the first thing to consider or understand about indexes are that they they simply track stocks, right?
It's a share index or stock index. And so it's basically just a bunch of stocks piled together to track how an economy or particular sector of the economy is doing. So when we strip away all the, let's call it the fluff and get down to the bare bones, there's essentially only three things that we need to know about each index, namely, what is the country that it represents? What is the sector waiting for the index? And then what is the top, let's say three or five or 10 companies, depending on how the index is weighted? For example, looking at the top three US equity indexes, of course, everybody will know the S&P 500, the Dow Jones 30, and the NASDAQ 100. Now the number in each of the names basically represents the amount of companies in the index.
But keep in mind, some companies might have dual listings like Google, for example, you'll have Google, you'll have Alphabet, which means that they might be 101 or 102 stocks, actually in something like the NASDAQ 100. Now, what we do or what we need to know about these three things, we can go back to that list of three things.
So firstly, what country do they represent? Of course, these three represent the United States and companies in the US.
And let's go to the second one, what is the sector waiting? Now, going down to the granular level and knowing the entire index composition is really just not that important. Knowing the let's say the top one or two or three sectors, depending on the size obviously, is usually enough for us to know. So looking at something like the NASDAQ, for example, it's got a very ITO technology heavy weighting as sitting at almost 50% of the index, which is followed by a consumer services at 20%. So very tech heavy index with the top five names being Microsoft, Apple, Amazon, Google and Facebook. And of those five names the first three make up over 30% of the index itself. So the index is very sensitive towards to regarding the tech sector and it is market capitalization weighted.
So it means that those five companies or six companies can make up the vast majority of the overall index. So if we see a big move in the technology sector, for example, or just in one of these five names, we can expect the index to be affected. So if you have massive news coming out about Facebook, for example, or Apple, or Amazon, you can expect that to affect the NASDAQ. And you can expect that to affect something like the NASDAQ more than the Dow Jones just as an example.
So any big divergence in some sectors can see different impacts in the equities. So looking at the NASDAQ, another important thing to remember is that the NASDAQ doesn't have any financials or oil and gas names. So any big divergences in oil and gas names might affect the S&P, but it might not necessarily affect the NASDAQ.
***For more detail please watch the video or go to www.forexsource.co
So knowing what might affect these indexes is helpful and to us as FX traders, because it can give us some context as to why certain markets are moving the way they do and whether that sentiment that is driving and is being an important enough to spill over into the overall equity markets and of course ultimately affect the various asset classes if we see strong risk on and risk of flow.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
