Indices

If you had a negative view for the Euro, perhaps because you felt that the Eurozone economy was performing poorly and was going to continue as such, you might look to short the Euro.

You might also have a view that the UK economy was looking healthy and that the short-term data was going to reflect this and beat expectations.

In this case, you would look to express your view by selling the Euro and buying the GB Pound, which would be a short position on the EURGBP currency pair.

Let’s say you sold EURGBP at 0.8500, with a target for a move down to 0.8000. You might then place a stop loss at 0.8700 in case the currency pair moved in the opposite direction.

• If the market moved down to 0.8000, you would realise a profit.
• If EURGBP moved up to 0.8700, you would be stopped out for a loss.

Many factors can influence the level of a stock index, but the main factors are:

Data: This includes both macroeconomic and microeconomic data.

Macroeconomic data is the major data that reflect the health of an economy or region and would include employment, inflation and Gross Domestic Product (GDP).

Microeconomic data is corporate data, which would include the usually quarterly release of company profits and revenues during earnings season. These data releases impact on an individual stock, and if the market moves are significant and/ or if the individual share has a significant weighting in an equity average, then it can have an impact on the overall index/ average.

Central Banks: Central Banks in most major economies control monetary policy, through changes to the national interest rate. Depending on how interest rates are expected to rise or fall in the future, this can impact on the whole economy by slowing or encouraging growth. That can affect individual shares and, by extension, the stock indices they form a part of.

Geopolitics: This is a broad concept which includes political, environmental, geographic and social impacts on economies and financial markets. Examples of geopolitics include trade wars (US-China trade war, 2018-2020), large political events (US elections, Brexit) and geographic events (also described as “Acts of God”) such as the Fukushima Daiichi nuclear disaster in 2011.