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Stock indices are generally more knowlaedgable in the community either in the U.S., Europe and Asia, because of the frequent stock indexes appear in news reports. Most of small traders and the majority of people do not fully understand how the index is traded. In general presumption that arises is that the index are traded just like stocks or simply regarded as information that can be used as indicators of the movement of stock prices in one sector.
In reality, stock index unlike stock. Stock index is not traded on the stock exchange (stock exchange) since the index is not a stock. To be tradable, then there must be a contract that specifies the size and time of delivery.
The contract is then traded on futures exchanges (futures markets). So that the index can be tradeds refers to a delivery contract in the future related to the amount of money that is calculated based on the value of the stock index.
Because the form of the index is a contract, the index allows trading for speculative purposes. Besides, this is done in order to protect the value of shares (hedging) who suffered losses, either in the up or down market. Stock indices also cover the weaknesses of trading in shares due to the difficulty of selecting individual stocks look to provide the best overall value of shares, either in total or per industry sector, even though in a bullish condition.
You can consider using a stock index trading land for two important factor, namely : the flexibility and leverage.
In addition, the instruments contained in the futures market price movements have a good area with high liquidity. Some instruments such as the Dow Jones could even be traded 24 hours a day. You can use stock index futures to take action based on that opinion freely and adjustments to your own level of risk to the various instruments more efficiently.
Definition of Stock Index
Stock index or stock indexes ( STODEX ) is the price or value of a group of stocks that has been collected based on certain categories. This index is an indicator of price movements of all the shares it represents.
For example, the Jakarta Composite Index ( JCI ), which represents the entire movement of stock prices traded on the Indonesia Stock Exchange or the Jakarta Industrial Classification ( JASICA ) which represents the price movement of a particular industry sector.
Each country usually has its own criteria and ways to sort and trade stocks.
As mentioned previously, since stocks indexes are indicators of the stock that has no assets, then to be traded as an investment instrument, has to be shaped into stock index contracts with certain criteria, such as a unit (lot ), the value of the contract and delivery time. Because of these criteria, then the stock index or exchange can be traded in the futures market or futures exchange in Indonesia.
Type of Stock Indexes
There are many types of indices traded in the world, because in general, most countries have their own stock index. Even some states have more than one index, such as the United States that has the Dow Jones, NASDAQ, and the S&P500 or the Japanese Nikkei and the Topix index.
Below are the most popular stock indexes in Asia and the United States;
The advantages of stock index
Trading the stock index has many benefits and advantages which can not be provided by the stock and some of which also can not be provided by other instruments. Important advantages that you need to know is:
Performance Diversified sales opportunities (Short Selling) Leverage Online Trading
The main index of the world is an instrument that has the best performance, even 97% over the entire mutual fund investment performance active over the past 40 years. Trading the stock index does not require full funding, requiring only a small portion of the fund value of the contract. So, when you succeed, the resulting level of ROI is very large.
Each stock index representing stocks move in it thoroughly. Index is an ideal place for diversifying the portfolio. For example, you have bought shares of Bank of America index. Then the company reported huge losses that make its stock price plummeted drastically. If you diversify through the S&P500, the effect will not be too significant because the remaining 499 shares of other companies that support the price index. If there is something on the stock index, you will not face liquidity problems. So it can be done as soon as possible without queuing. You will not find fraud as a common trade in stocks of individual companies.
Short selling (speculation and hedging)
Stock indices also rose in a state usually bullish and bearish in a state weakened. Index has the advantage that is not owned by the current stock price decline, stocks have a tendency to fall or having a sharp correction. Even sometimes happens more quickly than gains, but you can not do anything except wait for prices to go up.
Unlike the stock market, you can sell the stock indexes as easy as buying it. There are no rules that restrict the conditions under which you can sell. Being on time and under any circumstances in the trading session, you can make the sale.
The increase and decrease in general stocks will usually produce the same movement for the index. So you can do some sort of partial hedging to protect your portfolio losses due to the decline in stock prices.
Stock index generally traded using leverage of about 7 to 10% of the contract value. The use of leverage allows one to increase the ratio of the potential risks and benefits many-fold compared with no leverage.
For example, if you trade the Hang Seng stock index and buy 1 lot at the price of 14,000 (14,000 X $ 5 = $ 70,000), you only need the funds as small as $ 750 to start trading (differences can occur between the broker). In this example, you have leverage as much as 92 times, and if successful will certainly significantly increase your ROI.
Stock index can be traded online by using trading programs that is connected to the internet. After opening an account with a particular broker, you can carry out trading stock index wherever you are, as long as the mobile internet connection available.
Figure 1: The price index futures Nikkei, Hang Seng and Kospi
Figure 1 shows the price of the Nikkei, Hang Seng and KOSPI online on Monex Trader trading platform. Transaction you make through online can happen instantly by simply double-clicking on one of the stock price index and choose the position you want. Profit or loss you will also be able to monitor directly after a drawn position.
How to trade index
As mentioned previously, stock indices traded in the form of a contract and having a period. Stock index contract at a certain period can no longer be traded in the next period, except upon the transfer of the contract expiration. The contract periods are different for every index, but in general the time period starting from 1 to 3 months. The contract value is also different, according to the price of each stock index. However, still wearing the same unit lots. To get the value of a futures contract 1 lot of the S&P500, for example, you need to multiply $ 250 by the current index price. Say if the price index of 12,000 shares, then the original contract amount of $ 300,000 ($ 12,000 x $ 250). Or if Nasdaq is in the price of 2,000 then you need to multiply the price by $ 100. To find the contract multiplier (see table 1 below).
Table 1: Contract futures index multiplier
Stock index close position when the position is said that there has been liquidated. Form of position liquidation to remember always opposite the opening, for example, if you previously bought (buy), then the position of liquidation is selling (sell). Or conversely, if you sell (sell) the index, then closing the position is bought (buy).
The first position or entry positions can be shaped by buy or sell, there is no necessity to buy first and then sell. You can sell index futures first, and then buy it without complicated rules. You can hold the position until whenever you want, as long as the contract is still in the future, without having to pay a certain interest.
Stock index trading is done through an online program. More advanced than the previous period, when the media still use the phone placing the order.
Stock Index Trading Characteristics
If you wish to maintain position over the contract time limit, then you can do two alternative action :
Close the position at the end of the contract and simultaneously opened a new position in the contract. Allows you to position in rollover on the next contract by the broker.
Time trading stock index
Since the shares are traded on the stock index of each country, the trading hours adapted to local working hours applicable in the country. The difference between the trading hours of the stock index is quite far away. For example, the Nikkei index traded in the morning Indonesian time, while the Dow Jones was trading at night. Tables 2 and 3 show the differences in trading hours on any stock index.
Table 2: main index Asian trading hours
Table 3: U.S. indices trading hours
* Valid in the summer, while the winter every hour + 1 (open and closed markets back one hour)
Symbols and duration of term contracts
Duration of the contract in the stock index symbol provides identification month on how the contract will be terminated and the position to be solved. Months of the expiration of the contract is also often referred to as the delivery (delivery).
For example, you buy a June Nikkei index (Symbol: NK6_JPJ5U), then your position will expire in June (indicated with 6 digits after the index code). You must complete the position before, or right on the second Thursday in June. Table 4 below shows the symbol, the month and day of expiration of the contract index.
Table 4: Index symbols and expiry date
Leverage and Margin
Transactions for stock index (Stodex) futures also use leverage and margin system, just like forex. However, the value of the contract is different, as has been discussed previously.
Leverage can be translated as the use of borrowed funds to complete a transaction. In practical terms, leverage is none other than the use of the scale between the contract value and the capital required. If the contract value of 100 million then you only need a deposit of Rp. 1 million, the leverage is 100:1.
The use of capital with a smaller scale than its real value is what is called leverage. While capital as collateral for each transaction referred to in the transaction is called margin.
Calculating gains and losses
Some of the stock price index using decimals, and has a per-tick values (points) that are different from each other.
Tick value is determined by the type of contract used (value multiplier). For example, the mini Nasdaq had $ 20 and a minimum multiplier of 0.25 tick movement, so that every movement is worth $ 20 x 0.50 or $ 10 per contract (see table). Table 5 and Table 6 below, shows the size of the index contracts most actively traded stocks.
Table 5: Calculation of the movement of major Asian indices
Table 6: Calculation of the movement of the U.S. mini stock indexes
In Indonesia, the stock index traded are Japan, Hong Kong and Korea indices, which already have dollar contract, with the following details;
Japanese stock index (ISJ) = Rp. 30,000 per tick (JPJ) and Rp. 50,000 (JPK) Hong Kong shares (ISH) = Rp 50,000 per tick Korean stock index (UTI) = Rp. 35,000 per tick
To start the calculation of gains and losses in trading stock index is easy to do after knowing the important points above. For example, you want to sell the Hong Kong stock index.
Consider it the price of the Hong Kong Stock Index Futures prices are in 12800/05 and you managed to sell at that price (12800).
Then, let's say you already predicted that the Hong Kong stock index continued to decline. Therefore, you sell index (open position) of the units (lots) and wait for the price to decline.
The next day, the stock index fell as expected. You managed to close a position (buy index) at the price of 12700. then;
= 12800 (selling price) minus 12700 (purchase price) x 50.000, - (contract per lot) = (100) x Rp. 50.000, - Gain = Rp. 5,000,000. -
Conversely, if it turns out Hong Kong's index does not move like your expectations, and the price rose from 12800 into 12850, then;
= 12800 (selling price) - 1.2850 (purchase price) = (50) x 50.000, - Your Losses = Rp. 2,500,000
Exchange traded stock index futures, the contract means submission to the fore in the form of money that is calculated based on the market value of the stock index.
Stock index trading has many benefits and advantages, including a financial instrument that has the best performance, diversification and hedging instrument that is ideal.
Active stocks traded index is the Dow Jones, Nasdaq-100, the S & P 500, Hang Seng, Nikkei 225 and Kospi 200.