Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.
Please refer to the table below for more details:
The above data is for reference only, please refer to the MT4/MT5 software for specific data.
If you’d like more information, please don’t hesitate to contact [email protected].
In a remarkable show of strength, the Dow Jones Industrial Average experienced its best winning streak since 1987, advancing for 13 consecutive days. The 30-stock index added 82.05 points, or 0.23%, reaching 35,520.12, and is now on the cusp of matching the longest streak ever recorded dating back to June 1897. The market’s optimism was fueled by a Federal Reserve rate hike, pushing rates to their highest level in over 22 years. However, Fed Chief Jerome Powell’s comments about the possibility of a pause in future rate increases left traders uncertain, impacting Treasury yields. While some companies, like Google-parent Alphabet and Boeing, reported strong earnings leading to stock gains, others, like Microsoft, experienced declines due to slower cloud revenue growth.
Overall, the market’s mixed sentiment reflects the delicate balance between economic indicators and the Federal Reserve’s data-dependent approach in determining future monetary policies. Traders eagerly await the Fed’s decision on rates in September, hoping for signs that the economy can avoid a recession if the central bank chooses to remain on hold. The ongoing corporate earnings season is also influencing market movements, with companies like Alphabet and Boeing showing strength, while Microsoft’s performance was met with some disappointment. As the market continues to digest these factors, investors are keeping a close eye on the Dow Jones as it seeks to extend its historic winning streak.
On Wednesday, the overall market experienced a slight decline of 0.02%. Among the sectors, Communication Services stood out with a significant increase of 2.65%, while Industrials and Financials also showed positive gains of 0.66% and 0.65% respectively. Real Estate and Consumer Staples sectors also saw modest growth, rising by 0.34% and 0.21% respectively. However, Utilities, Consumer Discretionary, and Health Care sectors faced marginal declines, with drops of 0.05%, 0.06%, and 0.08% respectively. Energy and Materials sectors experienced somewhat larger losses, declining by 0.09% and 0.28%. Information Technology, on the other hand, took the steepest hit with a significant drop of 1.30%.
Major Pair Movement
On Wednesday, the dollar index weakened as investors focused on Federal Reserve Chair Jerome Powell’s dovish comments, overshadowing slightly improved economic growth language in the FOMC statement. While Treasury yields and the dollar initially rose after the statement mentioned the economy growing at a “moderate” pace, Powell’s news conference suggested that the end of rate hikes might be approaching. Market attention now turns to the upcoming policy announcements from the European Central Bank (ECB) and the Bank of Japan (BoJ) on Thursday and Friday, as well as crucial U.S. data. Thursday’s GDP and claims data, along with Friday’s personal income, spending, core PCE, employment cost index, and Michigan sentiment figures will be closely monitored ahead of the August Jackson Hole symposium and the September Fed meeting. Investors are also closely watching the ECB’s potential rate hike and the outlook for the EUR/USD pair, which rose after Powell’s comments, despite concerns about deteriorating euro zone economic data and the ECB’s dovish stance.
Meanwhile, USD/JPY fell as the market awaits the BoJ’s decision on whether it will tighten its policy on Friday. Governor Kazuo Ueda’s indications that policy will not be tightened are being scrutinized, but speculation about a possible rise in the JGB yield cap persists based on economic projections from the meeting. In the UK, the sterling rose after coming off earlier highs, with the possibility of a 50bp Bank of England (BoE) rate hike in August remaining slightly less favored compared to a 25bp increase. However, nearly 1% of further increases are still priced in due to the UK’s high inflation rate and the risks associated with managing it. On the other hand, the Australian dollar and the yuan faced declines after Q2 Australian inflation came in below forecasts, and doubts arose about the impact of Chinese stimulus plan promotions.
Overall, the global currency markets remain highly sensitive to central bank decisions, economic data, and policymakers’ statements, with investors assessing each currency’s strength based on a complex interplay of economic conditions and monetary policies.
The EUR/USD pair saw gains as Federal Reserve Chair Jerome Powell’s dovish remarks outweighed slight improvements in the FOMC statement on economic growth. Traders are now focused on upcoming policy announcements from the ECB along with key US economic data. Although Treasury yields and the dollar initially strengthened, Powell’s comments suggested a growing possibility of the end of rate hikes. Market participants await crucial GDP, claims, personal income, and other data before the Jackson Hole symposium and the September Fed meeting. The euro faces challenges from weakening eurozone economic data and a dovish ECB member. Uncertainty persists about whether EUR/USD has already peaked post-pandemic, with relative economic risk possibly favoring the US. Staying updated on central bank policies and economic indicators is vital for shaping the EUR/USD exchange rate.
According to technical analysis, the EUR/USD pair is experiencing a higher movement on Wednesday, leading the price to reach the upper band of the Bollinger Bands. This movement has also resulted in a closer gap between the bands. The Relative Strength Index (RSI) currently stands at 53, indicating that EUR/USD is back in neutral stance.
Resistance: 1.1121, 1.1208
Support: 1.1022, 1.0950
XAU/USD (4 Hours)
XAU/USD Prices Surge as Fed Raises Interest Rates, US Dollar Weakens
Gold prices have surged to weekly highs above $1,974 following the Federal Reserve’s decision to raise interest rates by 25 basis points. The increase in rates has led to a weakening of the US Dollar and an increase in market volatility. Market participants are now closely watching for any signals from the Fed that this could be the last rate hike, which could trigger a rally in bonds and drive Treasury yields lower, further benefiting the price of gold. However, the risk of a sharp reversal remains as the Fed is expected to maintain a hawkish tone until inflation shows clear signs of moving towards the target. The outcome of the Fed meeting will determine the direction of gold, and volatility is expected to persist with the European Central Bank’s decision and US economic data releases later in the week.
According to technical analysis, the XAU/USD pair initially experienced a higher movement and created a push to the upper band of the Bollinger Bands. Currently, the price is still pushing the upper band of the Bollinger Bands which shows there’s still a strong higher movement for Gold. Furthermore, the Relative Strength Index (RSI) currently stands at 65, indicating that the XAU/USD pair is starting to create a bullish trend.
Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.
Please refer to the table below for more details:
The above data is for reference only, please refer to the MT4/MT5 software for specific data.
If you’d like more information, please don’t hesitate to contact [email protected].
The Dow Jones Industrial Average achieved its longest winning streak in over six years as it closed higher on Tuesday. The index rose by 0.08%, or 26.83 points, reaching 35,438.07. This marked the 12th consecutive positive session for the 30-stock index, the longest rally since February 2017. Meanwhile, the S&P 500 climbed 0.28%, and the Nasdaq Composite advanced 0.61%. Traders closely examined the latest earnings reports, with General Motors seeing a 3.5% decline despite raising its full-year earnings guidance, while General Electric surged nearly 6.3% due to stronger-than-expected second-quarter revenue.
Investors eagerly awaited the Federal Reserve’s policy decision, expecting a quarter percentage point rate increase. However, uncertainties lingered about future actions as the market sought clarity on the Fed’s stance towards inflation and its economic outlook. Amidst this backdrop, Wall Street analyzed results from major tech companies, including Alphabet and Microsoft, which were set to report after the market’s close. As earnings season progressed, around 79% of S&P 500 companies surpassed analyst expectations for the second quarter, offering optimism for the overall market performance.
On Tuesday, most sectors experienced modest gains, with all sectors combined showing a positive change of +0.28%. The Materials sector had the highest increase at +1.76%, followed by Information Technology at +1.19%, and Energy at +0.57%. Communication Services also saw a slight uptick of +0.42%, while Utilities and Commercial & Professional Services had more marginal gains of +0.22% and +0.42% respectively.
On the other hand, several sectors faced declines. Financials had the most significant drop, with a decrease of -0.73%, closely followed by Real Estate at -0.74%. Transportation experienced a notable decline of -0.63%, while Consumer Discretionary and Industrials both saw moderate decreases of -0.23% and -0.13% respectively. Health Care and Consumer Staples also ended the day in the red, but with marginal changes of -0.06% and -0.05% respectively.
Major Pair Movement
The dollar index slipped 0.07% as risk-on sentiment increased, reducing demand for the U.S. currency. Weak economic data weighed on the euro ahead of the Federal Reserve and European Central Bank (ECB) meetings. Sterling rose 0.4% with important supports preventing further decline. The prospect of ECB rate hikes diminished due to lackluster euro zone data in July, leading to a slide in EUR/USD.
EUR/USD fell 0.24%, marking its fifth consecutive daily loss to its lowest level since July 12, triggered by below-forecast U.S. CPI data. Dovish comments from ECB officials added to concerns about a potential rate hike beyond the expected 25bp increase this week. USD/JPY also declined 0.2% amid a broader risk-on sentiment and ahead of the Fed meeting. However, strong services data and rising Treasury yields provided some support.
Market expectations for a 25bp Fed rate hike were steady, but there were doubts about additional rate increases in the future. Speculation about increasing the pace of quantitative tightening instead of raising rates multiple times emerged. The BoJ meeting was anticipated to maintain unchanged policies, but some trimming of yen shorts was possible if there were any surprises.
Traders remained cautious due to significant upcoming U.S. data releases, including GDP, jobless claims, personal income, spending, core PCE, employment costs, and Michigan sentiment. Additionally, market participants kept an eye on earnings reports from major U.S. tech companies and beyond.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Continues Decline Amid Weaker Euro and Central Bank Decisions
The EUR/USD pair experienced its fifth consecutive day of losses as the Euro weakened ahead of central bank decisions. The European Central Bank (ECB) survey revealed a significant drop in loan demand from companies, indicating a deteriorating economic outlook. The German July IFO survey also disappointed expectations. While a 25-basis point rate hike from the ECB is anticipated, the future interest rate trajectory remains uncertain. The focus now shifts to the upcoming FOMC meeting, where the Federal Reserve’s rate decision and messaging will be critical for the EUR/USD direction, with potential for increased volatility in the market.
According to technical analysis, the EUR/USD pair is experiencing a downward movement on Tuesday, leading to a push towards the lower band of the Bollinger Bands. This movement has also resulted in a wider gap between the bands. The Relative Strength Index (RSI) currently stands at 29, indicating that there is potential for further downward movement in the EUR/USD pair.
Resistance: 1.1121, 1.1208
Support: 1.1022, 1.0950
XAU/USD (4 Hours)
XAU/USD Prices Up as US Dollar Surges Amidst Fragile Economic Balance
Gold prices have risen despite XAU/USD reaching a one-week low, as the US Dollar strengthened due to a bleak economic outlook. The upcoming monetary policy announcements by the US Federal Reserve and the European Central Bank are awaited with caution, with expectations of a rate hike. Traders are also keeping an eye on macroeconomic figures, including Q2 Gross Domestic Product and inflation updates for the US and Germany, to determine the direction of the FX board in the coming weeks.
According to technical analysis, the XAU/USD pair initially experienced a slight decline on Monday. However, it subsequently rebounded and reached the middle band of the Bollinger Bands. At present, the price is slightly above the middle band. Furthermore, the Relative Strength Index (RSI) currently stands at 51, indicating that the XAU/USD pair is still in a neutral position.
Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.
Please refer to the table below for more details:
The above data is for reference only, please refer to the MT4/MT5 software for specific data.
If you’d like more information, please don’t hesitate to contact [email protected].
The Dow Jones Industrial Average continued its impressive winning streak, marking the longest rally since February 2017, with an 11th consecutive day of gains. The 30-stock Dow rose 0.52%, reaching 35,411.24 points, supported by a 0.40% rise in the S&P 500 and a 0.19% gain in the Nasdaq Composite. Energy stocks led the upward trend, particularly with a 1.7% surge in the S&P 500’s energy sector following positive oil and gasoline futures. Notably, Chevron’s nearly 2% increase came after the company reported better-than-expected preliminary second-quarter earnings. However, market participants remain cautious as the upcoming week includes significant earnings reports from approximately 150 S&P 500 companies and the Federal Reserve’s policy decision. Traders are eager to gauge Chair Jerome Powell’s remarks to understand the central bank’s approach to the economy’s soft landing and the potential quarter-percentage-point rate increase anticipated at the meeting’s conclusion on Wednesday.
Investors are closely monitoring the potential impact of the earnings reports and the Fed’s policy decision on the recent bullish run. The upcoming week is marked by substantial earnings releases from major companies, including Alphabet, Microsoft, and Meta, as well as industrial firms and big oil. Furthermore, traders are eagerly awaiting the release of the personal consumption expenditures index, the Fed’s preferred inflation gauge, at the end of the week. As these critical events unfold, Wall Street remains on the lookout for any signs of market volatility and potential shifts in economic sentiment.
On Monday, the overall market showed positive performance, with all sectors gaining 0.40%. The energy sector led the way with a notable increase of 1.66%, followed closely by financials and real estate, which rose by 1.01% and 1.00%, respectively. Consumer discretionary stocks also performed well, posting a gain of 0.52%. Communication services and consumer staples sectors saw modest growth with increases of 0.46% and 0.38%, respectively. Materials and information technology sectors showed moderate gains of 0.31% and 0.26%. However, the health care sector experienced a slight decline of 0.23%, while utilities had a marginal decrease of 0.28% on Monday.
Major Pair Movement
The dollar index strengthened by 0.26% as both the euro and sterling faced losses due to disappointing flash euro zone and UK PMI data. This rise in the dollar index was partially offset by a 0.25% drop in USD/JPY, which followed steady Japan PMI figures. Market participants were closely monitoring the upcoming meetings of major central banks, including the Federal Reserve, the European Central Bank (ECB), and the Bank of Japan (BoJ), all scheduled later in the week.
The dollar’s resilience was supported by a rebound in Treasury yields, which had initially fallen in response to lower European yields and mixed U.S. PMI data. However, the retreat in yields was short-lived, bolstered by increased corporate supply and expectations surrounding this week’s 2, 5, and 7-year Treasury auctions. The future direction of Treasury yields and the dollar hinges largely on the statements issued by the Federal Reserve after the expected 25 basis point rate hike on Wednesday. Market sentiment remains uncertain, given broader indications of a cooling U.S. economy and lower inflation, which may potentially favor rate cuts in the coming year.
During this period of central bank activity, investors were also closely monitoring the impact of Russian attacks on Ukraine ports, which contributed to a surge in wheat prices, and the ongoing recovery in fuel prices. Additionally, traders kept a keen eye on other crucial economic indicators such as German Ifo data and U.S. consumer confidence. The ECB is expected to implement a 25 basis point rate hike on Wednesday, with further increases largely priced in by year-end. Consequently, the euro experienced a decline of 0.49%, while sterling also faced a 0.23% drop, as the Bank of England (BoE) is likely to pursue a 25 basis point rate hike in August, followed by additional hikes to tackle higher inflation in the UK. USD/JPY experienced fluctuations in line with Treasury yields, fueled by lingering hopes that the BoJ would raise its JGB yield cap on Friday. Moreover, Japanese government efforts to limit yen depreciation, which contribute to cost-push inflation rather than demand-pull inflation, also influenced the currency pair’s movements.
Picks of the Day Analysis
EUR/USD (4 Hours)
EUR/USD Extends Decline as Eurozone PMIs Miss Expectations Ahead of Central Bank Meetings
The EUR/USD currency pair continued its downward trajectory, marking its fifth consecutive day of losses and reaching its lowest daily close since July 12. The euro’s correction lower follows its earlier peak at around 1.1300, which was the highest level in over a year. Economic data from the Eurozone, particularly the disappointing Manufacturing PMI at 42.7 and Services PMI at 51.1 in June, along with a Composite Index of 48.9, the lowest since November, raised concerns about the region’s economic strength and potential recession risks. Despite this backdrop of economic weakness, the European Central Bank (ECB) is still anticipated to implement a 25 basis point interest rate hike on Thursday, with the market closely watching the bank’s messaging for further cues.
As market participants positioned themselves for the Federal Reserve’s decision, US Treasury yields experienced a slight increase. The Fed is expected to raise its key rate by 25 basis points on Wednesday, making the central bank’s statements crucial for the direction of the US Dollar and financial markets overall. The US PMI data showed mixed results, with the Services PMI falling to 52.4 in July, below the expected 54, while the Manufacturing PMI rebounded to 49, exceeding the market consensus of 46.4. Amidst these developments, the DXY (Dollar Index) continued to rise, exerting downward pressure on the EUR/USD pair. Though some stabilization may occur prior to the Fed meeting, increased volatility is expected in the coming sessions. Key events to monitor include the German IFO survey and US housing data on Tuesday.
According to technical analysis, the EUR/USD pair is moving lower on Monday creating a push to the lower band of the Bollinger Band and creating a wider gap between the bands. The Relative Strength Index (RSI) is currently at 31, suggesting that the EUR/USD pair has the potential of moving lower.
Resistance: 1.1121, 1.1208
Support: 1.1022, 1.0950
XAU/USD (4 Hours)
XAU/USD Under Mild Pressure as US Dollar Gains Favor Amid Encouraging Data
Gold started the week facing mild pressure and remained at the lower end of the previous week’s range, with XAU/USD trading below $1,960 per troy ounce. The US Dollar saw some market favor after mixed yet encouraging data from the United States. S&P Global’s preliminary estimates of the July Purchasing Managers’ Index (PMI) showed a higher-than-expected increase in the Manufacturing PMI, reaching 49, its highest level in three months. However, the Services PMI, though still in expansionary territory, slowed to 52.4 from the previous 54.4. Despite this, US companies indicated continued business activity growth in July, with the service sector leading the expansion. Wall Street remained resilient, disregarding negative cues from international markets, as investors focused on upcoming earnings reports and significant events, including decisions on monetary policy from the US Federal Reserve and the European Central Bank. Furthermore, crucial economic indicators such as the preliminary Q2 Gross Domestic Product (GDP) estimate and the June Personal Consumption Expenditures (PCE) Price Index were also anticipated.
According to technical analysis, the XAU/USD pair moved lower on Monday but then managed to move back higher and try to reach the middle band of the Bollinger Bands. Currently, the price is slightly below the middle band. Additionally, the Relative Strength Index (RSI) is at 48, suggesting that the XAU/USD pair has returned to a neutral stance.
Let’s say you are a Forex trader who is interested in trading the EUR/USD currency pair. You know that the European Central Bank (ECB) is scheduled to announce its interest rate decision tomorrow. The ECB’s interest rate decision is a major event that can have a significant impact on the value of the euro.
Using fundamental analysis, you can assess the potential impact of the ECB’s interest rate decision on the EUR/USD currency pair. If you believe that the ECB is likely to raise interest rates, you might expect the euro to appreciate in value. Conversely, if you believe that the ECB is likely to keep interest rates unchanged, you might expect the euro to depreciate in value.
By understanding the potential impact of the ECB’s interest rate decision, you can make a more informed decision about whether to buy or sell the EUR/USD currency pair. This is fundamental analysis use example.
Understanding Fundamental Analysis in Forex Trading
Fundamental analysis is a method used by Forex traders to understand the true value of a currency pair based on economic, financial, and geopolitical factors. By understanding these factors, traders can make more informed decisions about when to buy or sell currencies and other assets.
Fundamental analysis is based on the idea that the price of a currency is ultimately determined by its underlying value. This value is influenced by a variety of factors, including:
Economic indicators
GDP growth: GDP growth is a measure of the overall size of an economy. A strong GDP growth rate is typically seen as a positive sign for a country’s currency, as it suggests that the economy is growing and becoming more prosperous.
Employment data: Employment data measures the number of people who are employed in a country. A strong employment report can be a positive sign for a country’s currency, as it suggests that the economy is creating jobs and people are spending money.
Inflation rates: Inflation is a measure of the rate at which prices are rising in a country. A high inflation rate can be a negative sign for a country’s currency, as it suggests that the value of the currency is decreasing.
Central bank policies
Interest rates: Interest rates are the rates at which banks lend money to each other. When interest rates are raised, it makes it more expensive for businesses to borrow money, which can slow down economic growth. This can lead to a depreciation in the value of the currency.
Monetary policy: Monetary policy is the set of tools that central banks use to manage the money supply and interest rates in an economy. A central bank’s monetary policy can have a significant impact on the value of a currency.
source: Los Angeles Times
Geopolitical events
Elections: Elections can have a significant impact on the value of a currency. If a new government is elected that is seen as being more favourable to business, the value of the currency may appreciate. Conversely, if a new government is elected that is seen as being less favourable to business, the value of the currency may depreciate.
Wars: Wars can have a significant impact on the value of a currency. If a war breaks out in a country, the value of the currency may depreciate as investors lose confidence in the country’s economy.
Natural disasters: Natural disasters can also have a significant impact on the value of a currency. If a natural disaster strikes a country, the value of the currency may depreciate as investors lose confidence in the country’s economy.
Market sentiment
The overall mood of traders towards a currency pair can also have a significant impact on its value. If traders are bullish on a currency pair, they are more likely to buy it, which can drive up its value. Conversely, if traders are bearish on a currency pair, they are more likely to sell it, which can drive down its value.
For example, a positive economic report, such as better-than-expected employment data, can boost investor confidence in a country’s economy, leading to increased demand for its currency.
How to Use Fundamental Analysis
Fundamental analysis can be used to inform both short-term and long-term trading decisions. However, it is more commonly used for long-term trading, as it takes time for fundamental factors to have a significant impact on currency prices.
To use fundamental analysis, traders need to track economic data releases, central bank announcements, and other geopolitical events that could impact currency values. They can then use this information to assess the underlying value of a currency pair and make trading decisions accordingly.
For example, if a country’s GDP growth is strong, it is likely that its currency will appreciate in value. This is because a strong economy is seen as being more stable and attractive to investors. Conversely, if a country’s GDP growth is weak, its currency is likely to depreciate in value.
The Economic Calendar
One of the most important tools for fundamental analysis is the economic calendar. This is a schedule of upcoming economic events and news releases that could impact currency pairs. The economic calendar is a valuable tool for traders because it allows them to stay informed about upcoming events and make informed trading decisions.
The economic calendar typically includes information about the following:
The date and time of the event
The name of the event
The country where the event is taking place
The impact of the event on currency markets
VT Markets offers a user-friendly Economic calendar that is accessible to beginners. The calendar is easy to navigate and provides clear information about upcoming economic events. It also includes an “importance” rating, which helps traders gauge the potential effect of an event on the market.
Additionally, you can use a Daily market analysis by VT Markets that can be a valuable tool for fundamental analysis. The Daily market analysis provides an overview of the key economic events and geopolitical developments that could impact currency values. It also includes a technical analysis section that provides insights into the short-term trends in currency prices.
Tips for using Fundamental Analysis in Forex trading:
Start by learning about the basics of economic analysis. This includes understanding key economic indicators, central bank policies, and geopolitical events.
Use a reliable economic calendar to stay informed about upcoming events. This will help you identify potential trading opportunities and avoid making uninformed decisions.
Combine fundamental analysis with technical analysis to make more informed trading decisions. Technical analysis can help you identify trends and patterns in currency prices, while fundamental analysis can help you understand the underlying reasons for these trends.
Don’t be afraid to experiment with different trading strategies. There is no one-size-fits-all approach to fundamental analysis, so it’s important to find a strategy that works for you. VT Markets provides a Demo account for risk-free strategy testing.
Most importantly, be patient and persistent. It takes time and effort to master fundamental analysis, but it can be a valuable tool for successful Forex trading.
Pros & Cons of Fundamental Analysis
Pros:
Fundamental analysis can help you understand the underlying factors that influence currency values.
This can help you make more informed trading decisions.
Fundamental analysis can be used to identify potential trading opportunities.
It can also help you avoid making uninformed decisions.
Cons:
Fundamental analysis can be time-consuming and complex.
It can be difficult to predict the future, even with a good understanding of fundamental factors.
Fundamental analysis is not the only factor that influences currency prices.
Other factors, such as technical analysis and market sentiment, can also play a role.
In conclusion, fundamental analysis is a valuable tool for Forex traders who want to make informed trading decisions. However, it is important to remember that fundamental analysis is not the only factor that influences currency prices. By combining fundamental analysis with other trading tools, you can make more informed and confident trading decisions.
Summary:
Fundamental analysis is a method used by Forex traders to understand the true value of a currency pair based on economic, financial, and geopolitical factors.
Economic indicators, central bank policies, geopolitical events, and market sentiment are key factors influencing currency values.
Beginners are advised to combine fundamental analysis with technical analysis for comprehensive decision-making.
Transport yourself back to the remarkable year of 1896, a time characterised by industrial revolution and transformative economic changes. Amid the bustling streets of New York City, the brilliant mind of Charles Dow sparked an idea that would send ripples through the financial world.
With a mere selection of 12 carefully chosen companies, he crafted what we know today as the Dow Jones Industrial Average (DJIA) – a beacon of brilliance among stock indices.
Fast-forward to the present day, and these luminous indicators continue to captivate investors and economists alike. They offer a unique glimpse into a country’s economic performance, providing invaluable insights into the ever-changing global financial landscape.
If you’re interested in understanding how indices trading works, what these indices represent, and how to analyse their price movements, continue reading to explore our detailed guide.
Understanding Indices
Indices are numerical representations of the top-performing shares from a particular stock exchange. They provide a snapshot of the exchange’s major players by averaging individual stock movements, consolidating a vast amount of financial activity into a single figure.
Some of the largest indices in the world are:
Dow Jones (in the US)
Nasdaq (US)
S&P 500 (US)
DAX 40 (in Germany)
CAC (in France)
FTSE (in the UK)
Hang Seng (in Hong Kong)
Nikkei (in Japan)
ASX (in Australia)
Stock indices can be calculated using two distinct approaches: one involves considering the performance of the largest companies, known as a market capitalisation-weighted average. This method is employed for indices like the S&P 500, FTSE, and ASX, where the movements of high-value companies carry greater influence over the overall index.
While the majority of stock indices adopt this approach, there are exceptions, and some indices are calculated using a price-weighted average. The Dow Jones and Nikkei are prime examples of indices using this method, where shares with higher prices wield more significant sway.
Since indices represent the overall stock value of multiple top-performing companies or high-value stocks, they tend to be more volatile compared to individual company stocks, providing both trading opportunities and increased risk for traders.
What is Index Trading?
Since indices are just numbers representing the performance of a group of shares on an exchange, they cannot be directly bought or sold.
Instead, traders need to choose products that mirror their performance, such as:
Index funds
Exchange-traded funds (ETFs)
Futures
Options
Contracts for differences (CFDs).
These products track the underlying index’s price, allowing traders to speculate on whether the index’s price will rise or fall and take positions accordingly.
Image shows index drops amid the covid-19 outbreak U.S stock indexes drops since 31/12/2019 (as %) source: howmuch.net
Factors Influencing Index Prices
Various factors can cause index prices to rise or fall, and understanding these factors is essential for trading indices effectively. These factors include:
General economic news: As indices summarise multiple companies’ stock performances, they serve as indicators of an economy’s health and are influenced by economic news.
Global news: Multinational corporations within local indices are affected by global events, such as pandemics, natural disasters, commodity price fluctuations, supply chain disruptions, and global economic turmoil.
Company financial results: Individual companies’ performance within an index affects the overall index, especially for highly valued companies with significant stock price movements.
Company announcements: Changes in company leadership, mergers, manufacturing updates, and other announcements have broader implications for individual stock prices and the index price.
Index composition changes: Adding or removing companies from an index can impact its overall price and requires traders to reevaluate their positions.
How to Trade Indices
When trading stock indices, thorough research, a good understanding of the chosen product, and proper risk management strategies are crucial. Index CFDs are among the most popular trading products. They allow traders to profit from both rising and falling index prices by predicting the price direction accurately.
Traders can approach index CFDs in two ways: going long or going short. Going long involves buying index trading products when expecting the price to rise, while going short involves selling or closing positions when expecting a price decline. Profit or loss depends on the accuracy of the prediction and the market’s overall movement.
CFD trading involves leverage, allowing traders to open positions with a small initial deposit (margin) that represents a percentage of the total asset value. While leverage provides exposure to larger markets with less capital, it also carries the risk of incurring losses greater than the initial deposit. Traders should choose suitable strategies for their portfolios when trading CFDs.
Tips on Successful Trading Indices
Do your research: Before you start trading, it is important to do your research and understand the risks involved. Read books and articles about index trading and watch educational videos. This will help you understand how the market works and how to make informed trading decisions.
Start small: Don’t start trading with a large amount of money. Start with a small amount and gradually increase your investment as you gain experience. This will help you minimise your losses if you make any mistakes.
Use a demo account: VT Markets offers a Demo account [internal link: https://www.vtmarkets.com/get-trading/open-demo-account/] that allow you to trade with virtual money. This is a great way to learn the basics of trading without risking any real money. Once you feel comfortable with the process, you can start trading with real money.
Be patient: Trading indices can be a volatile market, so it is important to be patient and not expect to get rich quick. It takes time and experience to become a successful trader.
Use stop-loss orders: Stop-loss orders are a way to limit your losses. If the price of an index falls below a certain level, your trade will be automatically sold, preventing you from losing more money than you are comfortable with.
Use take-profit orders: Take-profit orders are a way to lock in your profits. If the price of an index rises above a certain level, your trade will be automatically sold, ensuring that you don’t miss out on potential profits.
Don’t trade emotionally: It is important to stay calm and make rational decisions when trading indices. Don’t let your emotions get the best of you, or you will likely make bad trading decisions.
Starting Index Trading
To begin trading indices in live markets, follow these steps:
Select your preferred trading method: VT Markets offers indices CFDs, providing opportunities to profit from rising and falling prices.
Choose between cash indices and index futures: Cash indices have tighter spreads and offer on-the-spot trade pricing, suitable for day traders. Index futures are preferred for longer-term views with fewer overnight funding charges.
Decide to go long or short: Choose the direction based on the outlook for the economic sector or domestic market.
Implement risk management strategies: Utilise stop-loss and limit orders to prevent excessive losses.
Open your first position: Seize opportunities by monitoring and closing positions at the right time.
In conclusion, trading stock indices offers a window into the performance of major companies and economies worldwide. Understanding the factors influencing index prices and utilising products like index CFDs can provide traders with both opportunities and risks.
With proper research, risk management, and the support of a reliable broker like VT Markets, traders can confidently navigate the exciting world of index trading, diversify their portfolios, and hedge against market fluctuations. Happy trading!
Summary:
Stock indices represent the overall performance of top-performing shares from specific stock exchanges, providing a snapshot of the economy’s health.
Indices can be calculated using market capitalisation-weighted or price-weighted averages, affecting their volatility and risk levels.
Traders can’t directly buy or sell indices but can trade products like index funds, ETFs, futures, options, and CFDs, mirroring index performance.
Several factors influence index prices, including economic news, global events, company financial results, announcements, and changes in index composition.
Index CFDs are popular trading products that allow traders to profit from both rising and falling index prices with leverage.
Proper research, risk management, and selecting the right trading strategy are crucial for successful index trading.
Please note that the dividends of the following products will be adjusted accordingly. Index dividends will be executed separately through a balance statement directly to your trading account, and the comment will be in the following format “Div & Product Name & Net Volume ”.
Please refer to the table below for more details:
The above data is for reference only, please refer to the MT4/MT5 software for specific data.
If you’d like more information, please don’t hesitate to contact [email protected].
This week’s economic calendar includes important events that can significantly impact the markets: the FOMC Meeting Minutes, as well as the ECB and BOJ Rate Decisions. Traders should be well-prepared for potential market volatility resulting from these announcements and be ready to adjust their strategies accordingly.
Keep an eye on the following economic releases:
German, UK and US Flash Manufacturing PMI (24 July 2023)
Germany’s Manufacturing PMI experienced a downward revision in June 2023, reaching 40.6. In contrast, the UK’s PMI was revised upward to 46.5, while the US confirmed a PMI of 46.3, marking a six-month low.
The figures for July 2023 will be released on 24 July. Analysts predict Manufacturing PMIs as follows: Germany at 40, the UK at 46, and the US at 46.
German, UK and US Flash Services PMI (24 July 2023)
US Services PMI was revised slightly higher to 54.4 in June 2023, while Germany’s was confirmed at 54.1, the lowest reading in three months. UK’s was confirmed at 53.7, the lowest in three months.
Analysts predict Services PMIs for July 2023 as follows: Germany at 53.3, the UK at 53, and the US at 54.
Australia Consumer Price Index (26 July 2023)
The annual inflation rate in Australia declined to 7% in Q1 2023, falling from an over-30-year high of 7.8% in the previous period. This marked the lowest recorded rate since Q2 2022.
Looking ahead, analysts are forecasting a slower growth rate of 6.3% for the data covering the year up to June 2023. This information is scheduled for release on 26 July.
US FOMC Meeting Minutes (26 July 2023)
The Fed decided to maintain its funds rate target at 5.25% in June 2023. Following the FOMC decision, the Fed Chair emphasised multiple times the necessity of raising rates further within the current year.
For the upcoming meeting on 26 July, analysts forecast that the Fed will raise its interest rates to 5.5%.
European Central Bank Main Refinancing Rate (27 July 2023)
In its June meeting, the European Central Bank (ECB) raised its key interest rates by 25 bps to 4%. The ECB made it clear that future decisions would rely on incoming data and underscored its commitment to adopting a meeting-by-meeting approach in light of the uncertain economic environment, particularly as interest rates were nearing a potential peak level.
For the upcoming 27 July meeting, analysts expect the central bank to implement another 25 bps increase to 4.25%.
US Advance GDP (27 July 2023)
The US economy expanded at an annualised rate of 2% on a quarter-on-quarter basis in Q1 2023. This growth was higher than the previous second estimate of 1.3%.
The figures for Q2 2023 will be released on 27 July, with analysts projecting a slower growth rate of 1.9%.
Pandangan 
VT 
