Hello, me here again - everyone’s favourite guy who asks ridiculous questions!
Given that the very hammered-in way to trade currency in courses is to trade currency pairs - in fact, I don’t even think the Babypips school talks about trading indexes any more than a couple of lessons.
My understanding is that indexes such as the USD DXY is the USD in relation to all other currencies which would form a nice representation for how the USD and the US economy is performing relative to the world.
Would that mean that you could specialise your knowledge and keep up to date with only really the US economy news? How do people typically trade currency indexes?
also learn to understand WHAT AN INDEX IS
also it would be useful to understand what A SYNTHETIC PAIR IS
ALSO if you like US Based indexes
US2000
US500 (aka S&P 500)
US30
USDX
NOTE : Watch the leverage on the pairs, regardless of what your account leverage is.
also watch the Margin
i suggest trying each on a demo before you jump in life, otherwise you could get a rude shock and blow your account out quickly
also get used to the lot sizes
Unlike Currency you don’t get 0.01 and 0.1
Min Lot size = 1.0 Lot… BUT. it’s not $10 Per pip as with 1.0 lots on currency
but it’s also not like 0.1 in currency , hence $1 per pip (unless you live in the US)
Now, i’m in Australia
Trading US200 is depedant on exchange rates, but is generally around $1.30 per pip.
I like indexes , and i think you’ll probably like them as well
see what works for you
BUT UNDERSTAND WHAT THEY ARE before you jump in.
Basically you can look at them as AN AVERAGE
so USDX is the USD against 6 other currencies
BUT. it’s those 6 AVERAGED INTO 1 PRICE
LOOK AT LIKE THIS
if i made an index called TOM GAFFNEY INDEX and we called it TGX hehe
and then a person invested in it
that would be stupid without understanding what it was
Now let’s say what it was was this
You have a job that pays let’s say this week, your weekly wage was $1,000
now on the side of the index is 6 people with a crap to average income
and they each earn different amounts because they work on commission
but you also work on commission
so let’s say they are
Matthew, Mark Luke, John, Brad, Angelina
so Matthew earns $550
Mark Earns $800
Luke Earns $700
John Earns $650
Brad Earns $820
Angelina earns $1050 because she has a nice rack… hehe and that always helps , doesn’t it hehe.
so the average is
550 +
800
700
650
820
1050
4,570
Now divide this by 6
$761.67
compared to your $1,000
so the index would be a measure of the performance of you (Your Wage) compared to the performance of 6 others like you and it would measure the fluctuation in change OF YOUR PERFORMANCE relative to their collective performance.
does that make sense ?
so USDX is a measure of USD against the collective average worth of the other currencies
It is possible to trade the dollar index, usually through ETFs or futures, as well as options.
But since we assume most people are brand new to the currency world, by discussing how to trade these financial instruments in the School, we risk information overload. Especially since these instruments are traded outside the spot FX market and have their own specific risk characteristics. The biggest one probably being that you need a lot more capital to trade them relative to retail FX.
hehe… Ohhhh yeah. i remember that
You put it very delicately and politely
i prefer to call it
we risk DOING OUR HEADS IN hehe
that is so true, if you take in too much information and analyze everything you get to a point where you kind of forget what the end goal is but you are focussed on the short term analyss LOL
you then need to step back and re-evaluate everything and start over and SIMPLIFY.