15 A day in the markets

Introduction

Stock markets trade around the globe, starting each trading day in the East, which includes Australia, China, Southeast Asia, and Japan, followed by India, the Middle East, Europe, and finally, the Americas.  All the major stock markets are interrelated, often strongly, and understanding the interrelationships is important for successful trading and investing.  With a global stock market trading volume of over US$60tn every day, the amount of activity is vast.  A journey through a typical day in the markets can usefully illustrate the integrated nature of the world’s markets, and make some sense of their complexity.

The cash indices and the futures indices

The major US indices, including the Dow, the S&P 500, and the Nasdaq 100 are the most watched in the world.  In the UK, the most-watched indices are the FTSE 100 and FTSE 250.  They are referred to as the cash indices to distinguish them from the corresponding futures indices, which are based on derivatives. There is a futures market in many of the major world indices. The relationship between the US cash and futures indices has been described in Chapter 9.

The S&P 500 daily volume is in the region of US$3.5bn and upwards, and value of shares traded has reached above US$11bn.   It’s difficult to find the FTSE 100 volume in sterling terms, though number of shares traded can be found, e.g., on YAHOO! FINANCE under charts of indices.  A typical daily volume is around 0.6bn shares traded.  On exceptional days, FTSE 100 volume has reached around 1.5bn shares traded.

Stock market performance is ultimately measured through the performance of the cash indices, so every day there is an intense focus on their performance.  Are they moving sideways in a trading range with the possibility of breaking out to the upside or to the downside?  Over the last month or so have the market indices hit a series of new highs?  Will they hit another, and what then?  Are the markets grinding steadily upwards?  Are they in ‘bubble’ territory, with share prices overinflated by leverage?  Or have the markets crashed and the burning question is ‘has the bottom been reached?’ Are the major stock markets around the world moving in sync, i.e., […]