Indexes

Indexes
Introduction
Index investing is a low-cost, tax-efficient way to invest in shares, bonds, listed property or cash. Index funds seek to match the market rather than outperform it.

In recent years, these funds have been one of the fastest growing segments of the managed funds industry-in part because indexes targeting a range of market segments have outperformed most comparable actively managed funds over long periods.

Why Index
Index funds being so broadly diversified helps to from being exposed to performance fluctuations of any one share. Furthermore it is difficult to pick a particular share or security that will perform well.

Rather then trying to outsmart the market it is better to be well diversified across the market. This enables you to smooth out your investment returns over the long term without having to have the consistency to pick out winners.

Products Offered
For now MIF offers trading in the stock index market only through phone trading. The various index types offered by MIF are as follows:
1. Nikkei 225
2. Hang Seng
3. KOSPI 200
4. Dow Jones
5. Mini NASDAQ
6. Mini S&P 500

Nikkei 225 (NKI 225)
There are 225 companies that are listed in the Nikkei 225 index. These companies are the main decider of the economy of Japan.

Hang Seng (HSI 33)
The Hang Seng Index (HSI 33) which was started in 1969 is made up of 33 blue chips stocks from the Hong Kong Stock Exchange. The Hang Seng Services Ltd started the HSI 33 by calculating the market capitalization of the blue chip stocks which was under the watch of the Hong Kong Security Exchange.

KOSPI
KOSPI 200 is one of the most active markets in the world today. Investors from all over the world dabble in this active market and contribute up to 10% of the total transaction. The KOSPI 200 Index is made up of 200 companies which make up about 70% of the market capitalization in the Korean Stock Exchange.

Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average (DJIA) is an index used to measure the performance of the U.S. financial markets. Introduced on May 26, 1896 by Charles H. Dow, it is the oldest stock price measure in continuous use. Over the past century "the Dow" has become the most widely recognized stock market indication in the U.S. and probably in the entire world. Most of the stocks included in the index are listed on the New York Stock Exchange, and are all large blue-chip companies that reflect the health of the U.S. economy. All but a handful of these have major business operations throughout the world, thus providing some insight into the economic well-being of the global economy.

Mini S&P 500
A capitalization weighted index of 500 stocks. Standard and Poor’s 500 index represents the price trend movements of the major common stock of U.S. public companies. It is used to measure the performance of the entire US domestic stock market.

The Mini S&P 500 futures are small, but powerful contracts for the individual investor. They are a fraction of the size of the CME S&P 500 futures which is the most actively traded stock index contract in the world. The enables you to participate in and profit from the benchmark index tracked by pension and mutual funds around the country.

Mini NASDAQ
Many of the leading companies involved which are involved in the technological changes science and industry are a part of the NASDAQ-100 Index. The mini version of the CME NASDAQ-100 futures is one-fifth the size of the original NASDAQ-100 futures, making this contract affordable for all investors.

Stock Index
Stock Index is the market indicator to record average changed, of all stocks or certain stocks involved in the particular index.

For example when we look at the Index Harga Saham Gabungan (IHSG), the index records the average price and amount changes from the entire shares price traded in Jakarta Stock Exchange.

On the other hand the Index LQ-45 only records the average price changes from 45 of the main blue chip shares.

Another example would be to look at the Nikkei Index Average 225 (N-225) which is a highly popular Index Futures. The (N-225) records the average price changes from 225 of the main blue chip shares traded in Tokyo Stock Exchange.

Index Characteristics

• Lot: Per unit transaction
• Contract size: Measure of transaction value
• Contract Expiry: Period the contract ends

When looking to trade in the stock index investors can conduct buy or sell transactions by looking at the movement price of Stock Index Futures which is automatically based on the changing price of Spot Stock Index.

Illustration of Calculation of transaction of Nikkei Index Dated Aug 31, 2001
A client makes an open contract transaction for the Nikkei Futures Index which is to be contracted for September. The client sells 5 Lots at price level 10825.

Later that day the Nikkei Future September Index weakened until level price 10625 and the client decided to close the transaction.

Formula of Trading Statement Transaction:
(Selling Price – Buying Price) * Contract Size * Lot amount Net Profit = Gross Profit – (commission x No of Lots)
Net Gross = Gross Profit Commission x No of Lots
Result of Calculation:
Calculation of Balance Sheet:
Gross Profit/ Loss = (10825 – 10625) x (500) x (5 Lot) = Y 500.000 Assuming 1 JPY = 60Rp;
500.000 * 60 Rp = Rp 30.000.000
Net Profit/ Loss = (Gross Profit – (Commission * no of lots * 2)(Rp 30.000.000) – (Rp 100.000 x 5 Lot x 2) = Rp 29.000.000
Note 1: The calculation above can also be in reverse.

Note 2: Currently MIF offers trading facilities through phone trading. Online trading of Index is under way and will be included in the next version of the MIF Trader. For additional info please contact our client service personnel according to the desired locations.