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Market indexes:
A market index is a listing of stock and a statistic
reflecting the composite value of its components. It
is used as a tool to represent the characteristics of
its component stocks, all of which bear some commonality
such as trading on the same exchange, belonging to the
same industry, or having similar market capitalizations.
Many indexes compiled by news or financial services
firms are used to benchmark the performance of portfolios.
Types of indexes
Stock market indexes may be classed in many ways. A
broad-base index represents the performance of a whole
stock market and by proxy, reflects investor sentiment
on the state of the economy. The most regularly quoted
market indexes are broad-base indexes comprised of the
stocks of large companies listed on a nation's largest
stock exchanges, such as the American Dow Jones Industrial
Average and S&P 500 Index, the British FTSE 100, the
French CAC 40, the German DAX, the Japanese Nikkei 225,
the Indias Sensex and the Hong Kong Hang Seng Index.
The concept may be extended well beyond an exchange.
The Dow Jones Wilshire 5000 Total Stock Market Index,
as its name implies, represents the stocks of nearly
every publicly traded company in the United States,
including all U.S. stocks traded on the New York Stock
Exchange and most traded on the NASDAQ and American
Stock Exchange. Russell Investment Group added to the
family of indexes by launching the Russell Global Index
which covers 80 countries and all stocks with a market
capitalization greater than $200 million USD.
More specialized indexes exist tracking the performance
of specific sectors of the market. The Morgan Stanley
Biotech Index, for example, consists of 36 American
firms in the biotechnology industry. Other indexes may
track companies of a certain size, a certain type of
management, or even more specialized criteria - one
index published by Linux Weekly News tracks stocks of
companies that sell products and services based on the
Linux operating environment.
U.S. Indexes: About the Indexes
Widely regarded as the best single gauge of the U.S.
equities market, this world-renowned index includes
500 leading companies in leading industries of the U.S.
economy. Although the S&P 500 focuses on the large cap
segment of the market, with approximately 75% coverage
of U.S. equities, it is also an ideal proxy for the
total market. S&P 500 is part of a series of S&P U.S.
indices that can be used as building blocks for portfolio
construction. S&P 500 is maintained by the S&P Index
Committee, a team of Standard & Poor's economists and
index analysts, who meet on a regular basis. The goal
of the Index Committee is to ensure that the S&P 500
remains a leading indicator of U.S. equities, reflecting
the risk and return characteristics of the broader large
cap universe on an on-going basis. The Index Committee
also monitors constituent liquidity to ensure efficient
portfolio trading while keeping index turnover to a
minimum.
Stocks
There are no perfect approaches or solutions for investing
in stocks, fact investors can easily accept. Fundamental
analysis nonetheless can help investors gain more from
examining a firm's financial condition. Our articles
on stocks are a source of timeless, accessible financial
information that will help you spot significant research
trends and developments influencing the companies that
make up your portfolio.
Investor uses a systematic form of analysis to conclude
that a particular stock will make a good investment
and, therefore, should be added to his or her portfolio.
The position can be either long or short and will depend
on the analyst or investor's outlook for the particular
stock's price. Choosing a Stock can be a very difficult
process because there is never a foolproof way to determine
what a stock's price will do in the future. However,
by examining numerous factors, an investor may be able
to get a better sense of future stock prices than by
relying on guesswork. Because forecasting is not an
exact science, an investor or analyst who uses any forecasting
technique should include a margin of error in the calculations.
Commodity
A commodity is anything for which there is demand,
but which is supplied without qualitative differentiation
across a given market.
Characteristic of commodities is that their prices
are determined as a function of their market as a whole.
Well-established physical commodities have actively
traded spot and derivative markets. Generally, these
are basic resources and agricultural products such as
iron ore, crude oil, coal, ethanol, sugar, soybeans,
aluminum, rice, wheat, gold and silver.
Commoditization occurs as a goods or services market
loses differentiation across its supply base, often
by the diffusion of the intellectual capital necessary
to acquire or produce it efficiently. As such, goods
that formerly carried premium margins for market participants
have become commodities, such as generic pharmaceuticals
and silicon chips.
Linguistically, the word commodity came into use in
English in the 15th century, derived from the French
word "commodit?", similar in meaning to "convenience"
in terms of quality of services. The Latin root meaning
is commoditas, referring variously to the appropriate
measure of something; a fitting state, time or condition;
a good quality; efficaciousness or propriety; and advantage,
or benefit. The German equivalent is die Ware, i.e.
wares or goods offered for sale. The French equivalent
is "produit de base" like energy, goods, or industrial
raw materials.
Commodity Trading
In the original and simplified sense, commodities
were things of value, of uniform quality, that were
produced in large quantities by many different producers;
the items from each different producer are considered
equivalent. It is the contract and this underlying standard
that define the commodity, not any quality inherent
in the product
Markets for trading commodities can be very efficient,
particularly if the division into pools matches demand
segments. These markets will quickly respond to changes
in supply and demand to find an equilibrium price and
quantity. In addition, investors can gain passive exposure
to the commodity markets through a commodity price index.
Commodity Indexes
An index that tracks a basket of commodities to measure
their performance. These indexes will often be traded
on exchanges, allowing investors to gain easier access
to commodities without having to enter the futures market.
The value of these indexes fluctuates based on the underlying
commodities, and this value can be trade on the exchange
much in the same way as stock-index futures. There is
a wide range of indexes on the market, each of them
varying by their components. The Reuters/Jefferies CRB
Index, which is traded on the NYBOT, comprises 19 different
types of commodities ranging from aluminum to wheat.
They also vary in the way they are weighted; some indexes,
for instance, are equally weighted and others have a
predetermined, fixed weighting scheme
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