Stocks classification: indices, industries and sectors
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    Rookie Azis Muslim's Avatar
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    Stocks classification: indices, industries and sectors

    Definition
    The stock market, often called the stock exchange is a place for trading stock and other financial instruments. The stock market is essentially not much different from the traditional markets like Forex that we have known so far. There are buyers and sellers as well which compete to each demands of market price to go higher or lower. Stock market has 3 categorize, they are indices, industries, and sectors.

    Stocks are securities that show ownership of a company. If you buy sharess, you buy part of the ownership of the company. And you are entitled to the company's profits in the form of dividends, if the company makes a profit. You can also take advantage of rising stocks prices from time to time when you keep your shares for long term.

    The stock market function is to facilitate between those who need funding (companies) and those who have funds (investors). The company can obtain funds by releasing a portion of its stocks to the public, while investors obtain investment facilities in the form of company shares. Because of that the stock market is arguably describing as the economic condition of a country. If the economy of a country is developed, the stock market also develops as well because many companies want to expand their business, so many of them release stocks to the public. And so the opposite.

    The stock market allows investors to benefit from companies whose shares they own. When companies make a profit, stock market investors can make money through company dividends paid to them or by selling stocks that have a price difference from before, which is called a capital gain. Unfortunately, one disadvantage is that investors can also lose their money if the companies whose stocks they hold suffer losses, the stock price they hold falls and investors sell their shares with loss conditions.

    Indices

    Each big Nations has their own indices which represents to their nation’s stock market performance. From United States there is an S&P 500, British with their FTSE 100, Hong Kong with Hang Seng, Japanese with Nikkei 225, and many others. These products from stock market will also affect their currencies to Forex market which known as fundamental effect that actually relate to many things in the business. In Indonesia we also have Jakarta Composite Index (JCI) as our index.


    Does each index only has one product for each Nation? No. Each Nations also has its own Regional indices which has many others product. Here I want to describe it in details with each region of big Nations.

    Asia
    For the Asian region, several indices that we can pay attention to are the Shanghai Composite Index (SCI) of China, Hong Kong's Hang Seng, the Bombay Stock Exchange (BSE) of India, Japan's Nikkei, and Korea's Kospi. In China there is actually one more important index, namely the Shenzhen Index, but the more important one is the Shanghai Index.

    America
    In America, on the New York Stock Exchange there are at least 6,000 listed companies, far more than any other country. Maybe that's why indexes are focused more on certain stocks. And among these indices, what is important to note is the Dow Jones and Standard & Poors 500 (known as S&P 500). Dow Jones is an index for 30 blue chip stocks in America, such as Exxon, Microsoft, and JP Morgan, while the SP500 is an index for 500 stocks that have been selected based on certain criteria. The most famous investor in the world, Warren Buffett, uses the SP500 index increase / decrease as a comparison for the growth / decline of the investment he made.

    Europe
    Meanwhile in Europe, a number of stock exchanges that can be considered are the British FTSE (Footsie), German DAX, and French CAC. Why are the three countries chosen? Yes, because across Europe, these are the three most economically advanced countries. If you do not want to pay attention to DAX and CAC, then Footsie is relatively enough. This index includes 100 shares in the UK that have been selected based on certain criteria. While the London Stock Exchange (LSE) itself has at least 2,500 registered companies.


    Industries

    Similar with the index, stocks with industrial types focus more on industrial fields such as oil, gold, electricity, and many more. In essence, any company related to industrial matters can be categorized as an industrial share. By paying attention to market movements in a country's industry, we can find out how the trade balance is developing in the country. According to trusted sources, in general developed countries have more than 100 types of industries that represent different types in each industry.


    We can also predict market movements by looking at several factors that can influence it, such as financial news reports and natural factors such as bad weather which makes it difficult for workers in the industry to do their jobs.

    A man try to clear a path from snow in winter


    The usual example we face nearly in year basis is the level of market stability in the industry when the weather is bad in the winter which causes the market price of the related industry to decline. There are many examples of industrial stock markets in each country. Unfortunately I cannot mention them one by one because there are many industries in each country. Here are few examples of industries in the world.


    Food industries


    Gold industry in Indonesia, North Sumatera


    Sectors

    Just like industrial stocks, the sector is the core of the industry which plays a large role and covers all and some of the companies in the industry. For example, we know that many industries manage oil but there is only one sector for the oil sector in this section.




    Unlike industrial stocks, the sector shares are less because the sector bears the responsibility of many industries on the stock market. For every sector there are many industries that are managed. That is what the definition of Sectors in general.

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    Rookie Sascha's Avatar
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    good thread as usual, my friend. i'm bit confused to compare between sectors and industries because at first i thought they were the same but they're not, thanks to your explanation. indices are way interested to learn compared to industries and sectors because there should be plenty of big companies who run the field with both industries and sectors but there'll only some from indices like s&p 500 and dow jones which that's the only things i'm familiar with.

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    Rookie Azis Muslim's Avatar
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    Quote Originally Posted by Sascha View Post
    good thread as usual, my friend. i'm bit confused to compare between sectors and industries because at first i thought they were the same but they're not, thanks to your explanation. indices are way interested to learn compared to industries and sectors because there should be plenty of big companies who run the field with both industries and sectors but there'll only some from indices like s&p 500 and dow jones which that's the only things i'm familiar with.
    Thank you very much for leaving a nice commentary here. Those many traders out there are also feel as confused as you because stocks market is not really familiar to Forex traders who only spend and focus their efforts only with Forex market. Beside indices there are many industries we can count to the stock price and to trade with. Indices has different market session and they are not online for 24 hours a day.

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    Rookie Azis Muslim's Avatar
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    Stocks classification: indices

    Asia Indices


    Indonesia, The Jakarta Composite Index (IDX Composite)


    The Jakarta Composite Index (known as JCI, in English also called the Indonesia Composite Index, ICI, or IDX Composite) is one of the stock market indices used by the Indonesian Stock Exchange (IDX, formerly the Jakarta Stock Exchange/JSX). Introduced for the first time on April 1st 1983 as an indicator of stock price movements on the JSX, this Index includes the movement of prices of all ordinary shares and preferred shares listed on the IDX.

    The Base Day for the JCI calculation was August 10th 1982. On that date, the Index was set and started with a Base Value of 100 and the shares listed at that time were 13 shares. Overall, the highest intraday position ever achieved in market by the JCI was 6,368,322 points recorded on December 29th 2017. While the highest closing position ever achieved was 6,355.65 on December 29th 2017.

    Just like any other indices, IDX Composite also has many big companies that working on different sectors and industries that give the impact to the economy growths as well as helping the financial issue to be solved with their increasing and decreasing rate.

    today’s chart for IDX Composite





    Japan, The Nikkei 225



    The Nikkei 225 is commonly called the Nikkei, the Nikkei index, or the Nikkei Stock Average. The Nikkei is a stock market index for the Tokyo Stock Exchange. It has been calculated daily by the Nihon Keizai Shinbun as the Nikkei newspaper since 1950. It is a price-weighted index, operating in the Japanese Yen, and its components are reviewed once a year. Currently, the Nikkei is the most widely quoted average of Japanese equities, similar to the Dow Jones Industrial Average.

    The Nikkei 225 began to be calculated on September 7th 1950, 68 years ago and then calculated back to May 16th 1949. Since January 2010, the index is updated every 15 seconds during trading sessions. The Nikkei 225 Futures introduced at Singapore Exchange in 1986, the Osaka Securities Exchange in 1988, Chicago Mercantile Exchange in 1990, it is now an internationally-recognized futures index.

    The Nikkei 225 has many components of its index that includes many big industries in different sectors. They are on the screenshot I put below, check it out. Be advised these only an example of components that inside The Nikkei 225 I only put them in one screenshot to save the space.



    today’s chart for The Nikkei 225

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    Rookie Azis Muslim's Avatar
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    Hong Kong, The Hang Seng



    The Hang Seng Index is an adjusted, capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 50 constituent companies represent about 58% of the capitalization of the Hong Kong Stock Exchange.


    HSI was started on November 24th 1969 and it is currently compiled and maintained by Hang Seng Index Company Limited which is a wholly owned subsidiary of Hang Seng Bank, one of the largest banks registered and listed in Hong Kong in terms of market capitalization. It is responsible for compiling, publishing and managing the Hang Seng Index and a range of other stock indeces, such as Hang Seng China Enterprises Index, Hang Seng China AH Index Series, etc.

    Hang Seng in turn, despite being a public company, is held in majority by another listed international financial institution HSBC.





    Korea, The KOSPI



    The Korea Composite Stock Price Index or KOSPI is the index of all common stocks traded on the Korea Exchange. It is the representative stock market index of South Korea, like the S&P 500 in America. KOSPI was introduced in 1983 with the base value of 100 as of January 4th 1980 which like the other indices that started with mostly base value of 100. It is calculated based on market capitalization. In 2007, KOSPI's daily volume were hundreds of millions of shares which equals to trillions of won by now. It isreplacing Dow-style KCSPI (Korea Composite Stock Price Index).


    yesterday's chart for KOSPI


    here are the example list of KOSPI's components

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    Stocks classification: indices

    United States of America Indices



    The NASDAQ Composite



    Nasdaq stands for the National Association of Securities Dealers Automated Quotations. It was founded in 1971 by the National Association of Securities Dealers which divested itself of Nasdaq in a series of sales in 2000 and 2001.Nasdaq stock was listed on its own securities exchange on July 2nd 2002 under the ticker symbol NDAQ. The Nasdaq Stock Market is also known as Nasdaq, is an American stock exchange.

    It is the second largest exchange in the world by market capitalization and it is traded at the New York Stock Exchange located in the same city, New York. The exchange platform is owned by Nasdaq, Inc. which also owns some others U.S. stock and options exchanges.

    The Nasdaq Stock Market first traded on February 8th 1971. It was the world's first electronic stock market. At first, it was merely a quotation system and did not provide a way to perform with electronic trades. The Nasdaq Stock Market helped lower the spread but was unpopular among brokerages which made much of their money on the spread.

    market chart for the NASDAQ Composite


    Over the years after their first publication, the Nasdaq Stock Market became more than just a stock market by adding more trades and volumes and also with automated trading systems. It makes Nasdaq as the first stock market in the United States to trade online. The Nasdaq Stock Market has attracted many growth companies such as Microsoft, Apple, Cisco, Oracle and Dell. There are also another companies and I will add the screenshot about it.





    Dow Jones Industrial Average



    The Dow Jones Industrial Average which is popularly known as the Dow is a stock market index that shows how 30 large, publicly owned companies based in the United States have traded during a standard trading session in the stock market. It is the second-oldest U.S. market index after the Dow Jones Transportation Average, created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. Currently owned by S&P Dow Jones Indices, which is majority owned by S&P Global, it is the best known of the Dow Averages of which the first non-industrial was originally published on February 16th 1885. The industrial average was first calculated on May 26th 1896.


    market chart for Dow Jones

    The value of the Dow is not a weighted arithmetic mean and does not represent its component companies' market capitalization, but rather the sum of the price of one share of stock for each component company. The sum is corrected by a factor which changes whenever one of the component stocks has a stock split or stock dividend as to generate a consistent value for the index.

    The Industrial portion of the name is largely historical, as many of the modern 30 components have little or nothing to do with traditional heavy industry. The value of the index is larger than the sum of the component prices because of the divisor is currently less than one. Although the Dow is compiled to gauge the performance of the industrial sector within the USA’s economy, the index's performance continues to be influenced by not only corporate and economic reports such as news release but also by domestic and foreign political events such as war and terrorism, as well as by natural disasters that could potentially lead to economic harm. Anything that related to fundamental will also harmful to take and change the volatility.






    S&P 500


    The Standard & Poor's 500 which often called as the S&P 500 or just the S&P is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices. It differs from other U.S. stock market indices, such as the Dow Jones Industrial Average or the Nasdaq Composite index because it diverse constituency and weighting methodology. It is one of the most commonly followed equity indices and many people consider it as one of the best representations of the U.S. stock market and as a signal for the U.S. economy.

    S&P 500 was first called when it introduced its first stock index in 1923, began tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500. The S&P 500 was developed and continues to be maintained by S&P Dow Jones Indices, is a joint venture majority owned by S&P Global. S&P Dow Jones Indices publishes many stock market indices such as the Dow Jones Industrial Average, S&P MidCap 400, etc. The S&P 500 is widely used as a measure of the general level of stock prices, as it includes both growth stocks and value stocks.


    market chart for S&P 500

    In September 1962, Ultronic Systems Corp. entered into an agreement with Standard and Poor's. Under the terms of this agreement, Ultronics computed the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. Throughout the market day these statistics were furnished to Standard & Poor's. In addition, Ultronics also computed and reported the 94 S&P sub-indexes. It makes sense that S&P has code number of 500 because its index has 500 companies to handle.


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    Stocks classification: indices

    European Indices


    France, CAC 40



    The CAC 40 takes its name from the Paris Bourse's early automation system Cotation Assistée en Continu. Its base value started with 1,000 and it was set on 31th December 1987 which it is equivalent to a market capitalization of 370,437,433,957.70 French Francs. The CAC 40 stands for Cotation Assistée en Continu or Continuous Assisted Quotation in English, it is a benchmark of French stock market index. The index represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market caps on the Euronext Paris which formerly known as the Paris Bourse. It is one of the main national indices of the pan-European stock exchange group Euronext alongside Brussels' BEL20, Lisbon's PSI-20 and Amsterdam's AEX.

    today's chart for CAC 40


    Euronext Paris is France's securities market, formerly known as the Paris Bourse, which merged with the Amsterdam, Lisbon and Brussels exchanges in September 2000 to form Euronext NV, which is the second largest exchange in Europe behind the UK's London Stock Exchange Group.


    The French equities market is divided into three sections. The Premier Marché, formerly called the Official List, includes large French and foreign companies, and most Bond issues. The Second Marché, lists medium-sized companies, while nouveau marché lists fast-growing startup companies seeking capital to finance expansion, linked to Euro.nm, the European equity growth market. A fourth market, Marché Libre, is nonregulated, administered by Euronext Paris for transactions in securities not listed on the other three markets.

    Euronext Paris calculates a family of indices. The CAC 40 is the exchange's benchmark and desseminated in real time. Its components are included in the broader SBF 120 Index as a benchmark for investment funds. The SBF 250 index which is a benchmark for the long-term performance of equity portfolios includes all of the SBF 120 which it is structured by sector.





    Germany, DAX and Euro Stoxx 50


    DAX

    The DAX stands for Deutscher Aktienindex which known popularly as German stock index is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Prices are taken from the Xetra trading venue. According to Deutsche Börse, the operator of Xetra, DAX measures the performance of the Prime Standard’s 30 largest German companies in terms of order book volume and market capitalization. It is the equivalent or similarities value between FT 30 and the Dow Jones Industrial Average and because of its small selection it does not necessarily represent the vitality of the economy as whole. The Base date for the DAX was released in 30th December 1987 and it was started from a base value of 1,000.


    The L-DAX Index is an indicator of the German benchmark DAX index's performance after the Xetra trading venue closes based on the floor trading at the Börse Frankfurt trading venue. The L-DAX Index basis is the floor trade at the Frankfurt stock exchange. It is computed daily between 09:00 and 17:45 CET (Central European time). The L/E-DAX index (Late/Early DAX) is calculated from 17:45 to 20:00 CET and from 08:00 to 09:00 CET. Here are some examples from DAX Companies stock.



    Euro Stoxx 50

    The Euro Stoxx 50 is a stock index of Eurozone stocks designed by Stoxx as an index provider owned by Deutsche Börse Group. According to Stoxx, its goal is to provide a blue-chip representation of Supersector leaders in the Eurozone. It is made up the 50 companies as the largest and most liquid stocks. The index futures and options on the Euro Stoxx 50 are among the most liquid such products in Europe and the world.


    The Euro Stoxx 50 was introduced on 26 February 1998. Its composition is reviewed annually in September. The index is available in several currency such as EUR, USD, CAD, GBP and JPY and return which known as Price, Net Return, Gross Return in many variant combinations. Calculation takes place every 15 seconds between 09:00 CET and 18:00 CET for the EUR and USD variants of any return type while the CAD, GBP and JPY variants are available as end of day calculation only at 18:00 CET.


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    Now I'm beginning to get a glimpse of what stock trading is all about.
    I may be wrong, please feel free to correct me..
    So, trying to relate the traded indices with the conventional Forex that we traders are used to, I can say that indices are a representation of a company's financial position at a given time, just as the currency pairs uses in Forex represent the current financial standpoint of the various currencies.
    Now my big question... On what platform are these indices traded??

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