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The daily move is measured as the difference between the closing prices, one day to another. In broad terms there are two kinds of volatility: historical and implied. Historical volatility looks back, and is calculated from the actual closing prices of the index over the last 30, 60 or whatever days. Implied volatility looks forward. It is calculated by reverse engineering option prices. One way to think of implied volatility is that it is an estimate by market professionals of the likely volatility of the index over the coming 30, 60 or whatever days.
Working out the value of the VIX is a complicated mathematical procedure, but the principle is straightforward. The VIX is calculated by reverse engineering near-month options. It is a measure of the professional consensus estimate of how sharply the market will move over roughly the next month. One of the main reasons that fund managers find volatility-based instruments so useful is that volatility generally moves in the opposite direction to the market. Inverse correlations are very valuable to professional investors as they can be used to lower overall portfolio risk.
It is this same quality that makes the VIX valuable to individual investors. However when the A-VIX starts to move up from lower levels it means that option traders are lifting their estimates of the volatility to come.
Similarly, when the market falls hard, the A-VIX spikes higher. A sign that the market may recover from a recent sell down is the A-VIX pulling back from the spike highs. The recent ranges for the A-VIX point to two potential signal areas. When the volatility index trades between 10 per cent and 12 per cent, and then climbs over 12 per cent, active investors may consider trimming their portfolios. Whenever the A-VIX climbs over 20 per cent, it is in fear territory, and it can spike substantially higher than this point. However, as it drops back through 20 per cent it may also provide a buy signal to alert investors.
Active investment is more difficult than a simple buy and hold approach. Others use the available information to get better at it. Skip to navigation Skip to content Skip to footer Help using this website - Accessibility statement. Wealth Personal Finance Sharemarket Print article.
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Nov 19, — Save Log in or Subscribe to save article. Inverse correlations One of the main reasons that fund managers find volatility-based instruments so useful is that volatility generally moves in the opposite direction to the market. License article. Follow the topics, people and companies that matter to you. Delisted: When a company is removed from the Official List of the stock exchange and its shares are no longer listed for sale.
Derivative: A financial product that derives its value from an underlying variable asset such as shares, share price indices, fixed interest securities, commodities, and currencies. Some types of derivatives are futures, exchange-traded options, contracts for difference, and some warrants.
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Usually expressed as a number of cents distributed per share owned. Dynamic data: A data service offered by online trading systems that allows you to view live market information without needing to click a refresh button. Float: The initial raising of capital by a company asking the public to subscribe to their securities.
Shares offered on the share market for the first time are an example of a float. Fundamental analysis: An overall examination of the financial position of a company, taking into account its industry sector and the current economic environment. Futures: Futures are contracts to buy or sell a particular asset or its equivalent value in cash on a specified date in the future. This number should be stored securely to prevent theft of your shares and identity fraud.
S&P/ASX 200 Price Return (AUD) (^XJO) - Options Chain
Limit order: An instruction from you to a broker to buy or sell shares at a specified price or better. Margin loan: A loan that lets you borrow money to invest, using your shares or managed funds as a security guarantee for the loan.
Margin loans are extremely risky and are not recommended, as they can cause people to fall into large amounts of debt. They would only ever be an acceptable choice for experienced investors who actively monitor and manage their share investments to prevent losses. This is used as a unit of measurement to decide how large or small a company is.
Market depth: A measurement of the demand and supply of a particular share, or the liquidity of that share. Market order: An order from you to a broker to buy or sell shares at the current market price immediately. Official list: The list of the names of all securities permitted to be registered and trading on ASX. It is a free and independent service that resolves disputes with stockbrokers and other financial institutions. Anyone can call them on 78 08 As the name implies, the taker has a right but not an obligation to buy or sell. Price-weighted index: A share market in which each share influences the index in proportion to its price-per-share.
The value of the index is generated by averaging the prices of all stock in the index.
S&P/ASX 200 (^AXJO)
Stocks with a higher price are given more weight and have greater influence over the performance of the index. An example of a price-weighted stock index is the Dow Jones Index. RBA cash rate: The overnight interest rate that the Reserve Bank of Australia offers financial institutions to settle-up on inter-bank transactions.
Securities or a security: A financial product bought and sold in a stock market. Securities include shares, bonds, options, notes, and warrants. A security is usually negotiable and it is also fungible, meaning items of the same type are all the same and interchangeable. The company or entity that issues the security is known as the issuer. Share market: Also known as the stock market or the equity market. The market in which shares of publicly held companies are issued and traded. The stock market is one of the most vital components of a free-market economy because companies get capital from investors in exchange for giving shares as a portion of ownership in the company.
Shareholders are the owners of a company. Shareholders receive a portion of the profits if the company does well, in the form of dividends. Also known as a stockholder. Shareholder register: A list of every current shareholder the people who actively own shares in a company. Every listed company is required to keep their shareholder register updated on an ongoing basis.
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Short selling: Where someone sells a financial product that they do not own, with the intent of buying the product later at a lower price. Short selling was viewed as a contributing factor to the volatility of the world market during the GFC. Soft market: A market that has more potential sellers than buyers. A soft market can describe the situation for an entire industry or a specific asset. This refers to owners of shares only registered on the company subregister rather than on the CHESS subregister. SRNs must be provided to your broker when buying or selling shares. STP straight through processing : An efficient way to electronically process transactions where the customer does not need to manually re-enter data or instructions previously provided.
It includes different stages like trading, clearing and settlement. Takeover: Acquiring a controlling interest in a company by purchasing the majority of its shares. Technical analysis: Examining the actual history of the trading and price of a security or index. Unlisted company: Any company not listed on a licensed stock exchange.
Shares in unlisted companies cannot be bought and sold on the ASX. Volume-weighted average price VWAP : A trading benchmark calculated by adding up the total dollar amount of share trading transactions for the day and dividing by the total number of shares traded that day. What online share trading platforms are there in Australia? Online share trading — what to look for.
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