Index

An index is a statistical measure of change in the securities market. An index may track stocks, bonds, mutual funds or any other security, including other indices. The value of indices increases when the aggregate value of the underlying securities increases, and decreases when the value decreases. The index’s value may be weighted. It can be weighted by any outstanding shares, market cap or any other factors that indexer chooses. This means that securities with higher prices or greater market cap may affect the index’s value more than others.

Example

The S&P 500 is one of the world’s best-known indices which includes 70% of the total stock traded in the US. The Dow Jones Industrial Average (DJIA) is also a very well-known index, it represents 30 of the largest publicly traded firms in the United States.