How to invest in the ASX generally?

[Tyler Durden]

Might seem like a stupid question for someone who has been a member here for a while, but I wanted to know how I can invest in the ASX as a whole?

What I mean is, let's say before the market opens, I think the whole ASX will go up. What do I have to do, in practical steps, to invest in the whole of ASX? What's the code for it? I assume that is different to the ASX200?

 

[burglar]

Might seem like a stupid question for someone who has been a member here for a while, but I wanted to know how I can invest in the ASX as a whole?

What I mean is, let's say before the market opens, I think the whole ASX will go up. What do I have to do, in practical steps, to invest in the whole of ASX? What's the code for it? I assume that is different to the ASX200?

XJO is the index for the ASX200

XAO is the index for the All Ordinaries

 

[Tyler Durden]

XJO is the index for the ASX200

XAO is the index for the All Ordinaries

Thanks for quick reply.
I've just tried in comsec and put them in the code field, but it asks me to put in valid code?

 

[Valued]

XAO works in Commsec for me.

In practical terms, there is little difference between the XAO and XJO. The advantage of the XJO is you can trade the index. You cannot trade the XAO to my knowledge (there may be a way to do it through a CFD broker, but my CFD broker nor Commsec does not allow this option). If the XJO goes down the XAO will and if the XJO goes up the XAO will, and they will do so in very equal proportions. For example, the XAO lost 22.2 points on Friday while the XJO lost 22.1 points. The extra .1 is $2.50 per contract so it's negligible.

You can trade the index using exchange traded funds but you would have to research into that. Other than that, through Commsec your options are limited. They have CFDs (Contracts for Difference) but they arn't a very good CFD provider in my opinion. Commsec does not allow you to trade futures. It's very hard to find a futures broker if you are just starting out since either the commissions are high and you need a lot of capital or you won't have the experience for Interactive Brokers to allow you to open an account. You could find a CFD provider if you informed yourself of all the risks and were willing to take an online or verbal over the phone test. The issue with that is CFDs can be more complex than other derivatives. Futures are a derivative and then you can use a CFD to trade the difference in the futures contract so you're basically entering into a contract with a private party that is a derivative of the future which is a derivative of the index which is the average of the 200 stocks in the XJO. So you have to understand supply/demand in the XJO, you have to understand the futures market, then you have to understand the contract you have with a private provider and all the risks involved.

I made this sound difficult on purpose, so you might shy away from it before you understand all of the above. Trading indices is not that easy. If you are someone who presses "I agree" without reading when shown terms and conditions, complex financial products are not for you without first obtaining professional advice. If you just opened up an account and deposited 1k, found out you could trade a contract or two, you would likely be down five times your margin by the time you learn what a stop loss is.

By the way there is another derivative called options that can be used. Options can have a very defined risk i.e. you put in $500 and that's all you can ever lose. No one can take more than that from you. The problem with options is that you will likely slowly drain your account down. The mathematics for option is absurdly difficult. There are online calculators but realistically you need to understand at least the assumptions the math formulas make and ideally be able to purchase software that can map out the variables in some sort of visual form. If you choose to use any derivative you should do a lot of research and seek financial advice from a professional. If you understand university level math (I believe it's linear algebra and calculus, but my math isn't up to scratch...) you could pick up some books on options theory.

 

[burglar]

... In practical terms, there is little difference between the XAO and XJO ...

Agree!
They have run neck and neck since the year 2000 (if not earlier)

VAS, VANGUARD AUSTRALIAN ETF also runs with the All ORDS

 

[So_Cynical]

STW is the code of the State Street ASX 200 Index tracking ETF.

Index options probably give the quickest, simplest, cheapest exposure...especially if you have an IB account.

http://www.asx.com.au/documents/resources/index_options.pdf

 

[Bill M]

VAS, VANGUARD AUSTRALIAN ETF also runs with the All ORDS

STW is the code of the State Street ASX 200 Index tracking ETF.

I have used both of these effectively and find it a very easy way to cover the market.

VAS covers the top 300 shares and STW covers the top 200. It is a simple online order through your broker just like any other stock, all the best.