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1.2 Equities Indices
What are they?
Why does a company give out its Equities?
It is just a different way and mechanism to gain capital from investors by giving a slice of their company and that is what we actually then call Shares. That is when we can buy shares within a company, which is a slice of a company. A company does that to raise capital to reinvest and make more profit. In return, investors make money from it by buying and selling the shares at a higher price.
For Stocks, some different types of examples that you might know:
FTSE 100 is an example
How did they do it and how did they put the price?
They use a weighted average of the computed prices of selected stocks. It has a formula, which is publicly available. Through the weighted-average, you get the different prices but cumulatively showing all Markets in general. In terms of that you get the different types of Indices.
Types of Indices:
Similarly there so many different types of Indices markets.
Market size and Liquidity of the Equities and Indices Market.
- It has a market cap of 2.05 trillion dollars A trillion is like a thousand billion
- Average daily turnover of 2 billion dollars
- It has a market cap of 19.6 trillion dollars. It is so much more than the LSE (10 times)
- Average turnover of 43 billion a day. That is the amount of money that goes through the NYSE.
These are just some of the examples and you can also take a look at the other stock exchanges around the world as well. We just wanted to point out the two main ones to you and how you can look at them as well.
Price Increments (PI)
In normal everyday transactions, whenever you make a transaction to buy a book or a laptop, you may have asked yourself what is the smallest price increment that product can increase by.
For example, when you buy a book £450.55, the smallest price increment that it can move by is only 0.01. In the UK we call that a penny and, in the US, we call it cents. In other countries, we use it in accordance to their country. Trading in Penny, is basically in decimal points of £0.01.
In the stock market, for equities and Indices, the smallest price increment, is what we call points. As you can see the vertical bar that we have shown in the video, which we will be talking much more in detail later in the sub-modules, as the bars fluctuate, the smallest point increment that they can have is 0.01. This is what we call a point.
I believe you have understood very well on this video on what is Equities and Indices Market about, the Market size and liquidity, and also the smallest price increment. Let's move to the next type of Market which is the Foreign Exchange Market.