Understanding Global Stock Indices And Forex
Since the first outbreak of the global credit crisis, global stock markets have experienced extremely rapid price fluctuations, with the majority of investors quickly becoming bewildered with the ever-changing trend. As the contagion spread across Europe and the US, global financial markets changed abruptly to a “risk-on” phase, where global financial markets experienced sharp downward price movements, resulting in unprecedented bearish price behavior. In a technical analysis view, global stock indices in March wiped off all historical, key support factors relating to the overall multi-year rallies that occurred in previous years. This article will explain the main ingredients of successful forex trading and the difference between forex indexes and global stock indices.
A well-established indicator to gauge the strength of global index markets is the performance of their trading ranges. When prices fall, they are signaling an impending reversal of the current trend, as investors become more comfortable with holding out and waiting for prices to rebound.
However, if the market trends continue on a downward trend, it is a sign that investors have lost confidence in global equities and are ready to take their money out of the market. The best time to buy or sell is when the market is moving up, as it is easier to make a profit when a currency‘s value is rising. However, when a currency is on the move in a negative direction, it may be difficult for an investor to find a buying or selling opportunity due to a lack of fundamental support. In fact, this can be one of the most volatile times of the year when it comes to the markets as many investors are anxious to take their money out.
Although most investors have an idea of what a foreign exchange market looks like, they usually lack a clear understanding of how the different markets interact. To give you a good grasp of how market activity flows through the world’s leading financial markets, I recommend that you first consider the difference between global equity and international equity markets. There are four major global asset classes, namely: bonds, stocks, currencies, commodities, and indices.
International equity markets, as the name suggests, operate internationally. They consist of various nations’ government backed debt securities, including equities and treasury bills, and foreign loans. The major asset holders in these markets include: China, Japan, Germany, India, Russia, Canada, Saudi Arabia, South Africa, Sweden, and the United Kingdom among others.
On the other hand, a global stock index is comprised of several individual countries’ stock market indexes that are based on the information from each country’s local market. As its name suggests, these markets are generally based on the performance of stock values across countries, although they may also include secondary markets such as futures and options trading.
To help give you an idea of how the two types of markets can interact, let’s first look at some examples. If a US index is on a downward trend, global stocks will experience a decline, while a US equity index will experience a rise. This is because the underlying assets of the US economy have less risk, meaning that when the US dollar drops against a pair of currencies, global stocks will experience a decrease in value.
On the other hand, if the US dollar increases against a pair of currencies, forex indexes will increase in value, as the value of the US dollar is expected to increase as a result of increased demand from overseas buyers. If, on the other hand, the US dollar declines against a pair of currencies, global stocks will experience a drop as the demand for US dollars will decline in the US economy.