Indices went through a fashionable phase about 30 years ago. At one stage, they were the defining story for market analysts. As most investors know, market fashions don’t last, and the market’s enthusiasm for analytical tools tends to be endless until it’s discovered they don’t work. If you’re a trader, your information needs to be based on something very like Search Engine Optimization, a range of key facts. Indices have their place in the schematic, but not as the sole source of materials to make judgment calls.

The applications of indices- The positives

Indices do in fact have direct, useful applications. Ironically, their most obvious uses are much better leads than they look. The mere fact that an index moves up or down on a particular day doesn’t necessarily mean much, but the elements within it are often good indicators of trends. If you know how an index is weighted, you can pin down useful facts and find good information.

For example:

One glance at an index can tell you a lot. If the Aerospace index goes solidly up, it means that the heavyweights in that index are on the move. That in turn means new business, and new business for a company like Boeing is good news for related industries, localities and subcontractors and related manufacturers. It’s like a Yellow Pages of investment opportunities.

There are some market products like commodities and index based investments like mutuals and Exchange Traded Funds, which are obviously hardwired into their various indices. Their indices have direct dollar-based applications to these types of investments, and you can predict, fairly accurately, without even looking, sometimes, what’s happened, simply on the basis of the size of the index move. Again, if the Aerospace index takes a hit, you already know that Boeing or one of the other giants has tripped over something and things are looking very iffy.

So indices do tell pretty accurate stories, within these frames of reference. That is quite specifically not the case with a range of other scenarios, which are much more individualized and behavioral.

The negatives and the misleading scenarios

If indices are pretty faithful reflections of some types of information, they can be very misleading in some contexts:

• A boom market will keep telling traders they’re on a good thing in any index they look at, until the inevitable downward correction/disaster happens.
• Indices are weighted. Good stocks in dismal indices aren’t exactly unknown, and vice versa.
• Investment performance and ROI aren’t well defined by indices except in the specific hardwired investment types.
• Indices cannot track issues with their component companies very effectively, if at all.
• Nobody was aware of the scale or depth of the financial market fiasco in 2007. The indices were all pointing straight up, when the biggest downward correction since 1929 hit.
• An index can’t tell you if the semi-literate/amnesiac CEO of your investment is trying to replay the Enron saga or not with their capital management until it’s too late.  

Yes, indices matter, and yes, they can provide useful information, particularly if you’re experienced enough a trader to be skeptical on principle. Otherwise, stick to your SEO approach to key data and other information. It’s a lot safer.

For anyone new to investment, it is vital to understand the basics of managed funds, their rationale, and what they bring to the investor.

A Range of Money Managers and a Range of Objectives

Managed funds give the investor an opportunity to participate in the growth of the economy. This participation can be spread over a range of assets, such as shares, property, commodities and bonds, or can be concentrated in just one of these assets, or possibly another asset. As this range of assets, or more specific asset performs, so too does the managed fund. There are many money managers out there. Some may focus on trying to outperform a certain stock market index, or possibly focus on a specific attractive sector (for example, emerging markets). Performances and objectives regarding timeframe will therefore vary.

Investment Over a Broad Range of Securities and/or Assets

As mentioned above, many managed funds will invest in a range of assets. For novice investors, such a fund is the safer option if starting out and looking for more general investment exposure. Your funds are essentially divided up across all these assets. To gain such a broad exposure by yourself would be very difficult, and one would end up spending huge amounts in brokerage! A dedicated fund manager, by managing large amounts of money for many investors, can therefore reduce these investment costs, by spreading them across all investors.

Commissions – Active and Passive Funds

A commission is what you pay a fund manager, for managing your money. In general, these may range from around one to a few percent. Naturally, a fund that just replicates an index (for example the ASX100) should charge less than a fund which requires the manager’s expertise and more active management of the fund. Some funds may also pay additional commissions should the fund outperform a given index, or other asset that is easily able to be valued. It’s worth comparing a few similar funds to see whether the performance of the fund justifies the commission being charged.

Returns Linked to Those of the Economy

Our financial system is based on the pursuit of economic growth. The profit motive spurs companies on to continually develop better products, more efficiently than before. The beauty of managed funds is the broad based opportunity they afford investors to participate in this economic system. As companies in general grow, and increase in profitability, so too should managed funds investing in such companies.

Liquidity and Valuation

As managed funds are made up of a number of underlying assets which are continually changing in value, periodic collation of the value of all these assets is required. Your fund manager will do this, leading to a “unit price”, which they will publish periodically. You can then compare this unit price against the unit price at the time you invested, to see how your investment is faring.

If you are not happy with your fund’s performance, or your investment outlook has changed, selling out, or switching between funds is fairly easy. Please note that there may be exit fees, so beware of chopping and changing too much, as this may end up being a drag on your overall returns.

Managed funds revolve around share trading by professionals, in order to allocate your funds to appropriate investments.

If you want to begin a career in the world of stock markets, the first thing that you should do is to make sure that you know the basics about Futures trading. This is a type of investment where some people claim that they are able to get huge profits from. Futures trading involves you to speculate on the cost of some particular commodities, whether they will increase or reduce their prices in the coming days, weeks or months.

The commodities that we are talking about here will be traded from one currency to another. Therefore, traders should bear in mind that the right approach here is to buy them when the prices are low and sell only when they are priced high. Futures trading is actually not about trading in the market. What is involved here is what they call the futures contract. This is just like any of those binding contracts that include an expiration date but you have the right to cancel this anytime you think that they are not useful for your money earning system. In reality, the most liquid contracts in Futures trading are those that last for only a few days or even hours.

In Futures trading, you do not have to stick to one contract alone. You can go for as many as you like since they are all pretty much the same with regards to the quality and the amount. They are standardized contracts but quite obviously, they have different expiration dates in which you have to keep an eye on.

Now that you understand just what Futures trading is all about, it is now time for you to convene with the traders, who can either be a hedger or a speculator. The former sells futures contracts so that he can avoid the risks of the prices going high while the latter sells contracts when they think that the prices will drop.

With Futures trading you will rely on your intuition so that you can make correct forecasts and predictions. However, there are some tools that are available today, which you can take advantage of so that you can get assistance when you need it.

Futures trading is another method of investment available for people to invest in.  Just like any other form of investment, success requires that the investor get to know the market and the process of trading. Without the necessary knowledge in futures trading, it would be difficult for any investor to make money out of their investment capital effectively. They would even be risking their money from possible investment loss.

For starters, investors should know what futures trading is all about. The simplest definition to understand about futures trading is that it is a type of trade wherein a type of commodity is being traded on a market with transactions noting a particular type of commodity sold and bought at a specified price and deliverable from a specified time in the future.

What futures trading is all about can be summed up in a typical transaction between two parties. One party is a producer of a certain commodity while the other is the buyer. The producer offers the buyer a certain commodity deliverable in the future, let’s say, six months from now. The buyer, who may be looking to ensure that he has ample supply of the said commodity in the future, would surely be interested.  Both parties then make up a contract wherein a specified amount of the commodity may be deliverable for a particular time in the future is agreed upon. That, in a nutshell, is what futures trading is about.

For others, it might still be a little bit complicated to understand. But the essence of futures trading lies in the understanding between the commodity supplier and the buyer of the commodity. Sometimes during the course of time between the agreement and the time of delivery, the contract may change hands as the buyer may wish to trade the contract for other lucrative opportunities.

Futures trading started with grains such as wheat as the main commodity traded. Trading eventually comes to include other commodities such as lumber, crude oil, coffee and even orange juice. Precious metals such as silver, platinum and gold also have their own futures trading market.

Futures trading transactions usually happen in places called future exchanges. They may operate much like the stock exchange. Only this time, it is the commodities that are being traded instead of stocks.  The futures exchange tries to standardize all of the futures contracts being traded in order to facilitate faster and more convenient liquidity upon the contract’s expiry date.

The futures exchange trading floors are usually divided into certain pits or rings where traders stand facing each other. Each ring has their designated type of traded futures contract. The exchange can house different futures trading for a variety of commodities. It can be quite common to see a pit trading wheat alongside a pit trading in crude oil and soybean. The futures exchange trading floor usually only allow members to trade and speculate. Non-members have to go through brokers or partners who hold memberships in order to trade.
Just like any other type of investment, futures trading also has its own advantages and disadvantages.  It takes a wise investor to first learn about the ins and outs of futures trading before venturing out into the opportunities that it may provide.