Binary Trading on the KOSPI Market Index
If you’ve been trading index binary options for quite some time, you may have experience in placing trading on indices located in the Asia-Pacific region. Asian economies, such as South Korea, continue to grow and market indices from this region have encountered a range of movement in recent years. South Korea has been a hub for innovation and development for a number of years, making the Korean Composite Stock Price Index (KOSPI) an important index to learn more about as you engage in binary options trading.
What is the KOSPI?
As an index representing all common stocks traded on the stock market division of the Korea Exchange, the value of the KOSPI is representative of the overall South Korean economy. The index was introduced in 1983, replacing the Dow-style KCSPI (Korea Composite Stock Price Index).
How the value of the KOSPI is calculated
Like many other indices you may have encountered as you’ve traded index binary options, the KOSPI is calculated based on market capitalization. The original Dow-style Korean Composite Stock Index, which included 30 of the top Korean stocks trading on the exchange, was also calculated by weighting the stocks that form part of the index, but with only 30 stocks. The change in 1983 shifted the calculation of the index to include all of the exchange’s stocks, providing a representative index of the South Korean economy. This makes the KOSPI quite unique in comparison to other indices, like the FTSE 100 and S&P 500, which only includes a set number of stocks.
As of July 2012, the KOSPI has over 780 components. These include some of the leading companies in South Korea from electronics firms like Samsung Electronics, automotive companies such as Hyundai Motors and industrial manufacturers like LG Chemical.
What influences the value of the KOSPI Index?
As is the case when you’re binary stock trading, it’s essential to achieving successful results to understand what influences the value of the KOSPI index. The South Korean economy is fairly unique largely due to its location in the world. This creates a scenario where the KOSPI’s value is heavily influenced by the economic stability of neighboring countries as well as political stability with its neighbor to the north, North Korea.
Although South Korea has demonstrated strength in manufacturing, South Korea relies heavily on demand from consumers worldwide. For instance, on September 12th, 2011, following the 9/11 terror attacks in New York and Washington, DC, the value of the KOSPI had its largest one-day percentage drop of 12.02% (64.97 points). Since that time, similar trends have occurred following significant global events such as the economic recession in the US and Europe which began in 2008. For this reason, global economic events seem to have a major impact on the value of the KOSPI.
Additionally, the KOSPI has been influenced in the past when tensions rise between other countries and North Korea. Since both countries share a border, rising political tension will have a negative impact on the South Korean economy, often resulting in a drop in the value of the KOSPI. For instance, the KOSPI experienced an annual low of 1,783.45 at the end of June 2013 falling from a 3-month high a month earlier of 2,001.05, after rising tension occurred between North Korea and the US around nuclear weapons. Thankfully, since this time, this tension seems to have stabilized with the KOSPI’s value moderately advancing as well.
South Korea is an important economy in today’s world. Despite facing some challenges in recent times, the South Korean economy continues to grow with its product innovations, with the Korean Exchange now trading millions of shares daily. From a binary options perspective, the KOSPI is an index from one of the world’s emerging economies, making it an interesting alternative as you trade binary options.