What is Stock Market Index?
You must be very much familiar with this term if you have ever traded in the stock market. The stock market index shows the up and downs of the stock market and plays a very import role in daily trading activities as well. The stock indexes actually reflect the overall performance of a particular portion of the stock market.
Definition of Stock Market Index
It works as an investment tool for investors to determine the present condition of the stock market. Just because it reflects the entire condition of a particular portion of the market it helps a lot to determine the current, past, and future market trends of that sector. So, an investor doesn’t have to go through all the stocks to determine whether the market is good or not, the market index does the work for that. Now I will discuss about a few types of stock market indexes which will be very helpful to understand what is stock market index.
Types of Stock Market Indexes
- S&P 500- The S&P 500 is one of the most popular stock indexes in the US stock exchanges. It consists of 500 widely traded stocks which are mostly from the US. We all know that The United States is the largest financial marketplace of the world and it directly or indirectly impacts the whole world. So, the traders across the world depend on this index to know about the current market situations in the US. The S&P index focuses on sectors like financial, healthcare, industrials, energy etc.
- NASDAQ- It is another important stock index of the United States which reflects the performance of nearly 3000 companies. This index mainly focusses on the technology sector which has companies like Google, Apple, and Facebook.
- FTSE 100- The FTSE index shows the performance of 100 biggest companies of the London Stock Exchange. But, unlike the United States, most of these companies are not from the UK and doesn’t reflect the economic growth of this country.
- Dow-Jones Industrial Average- This stock exchange is very old and respectable in the US and the stock markets around the world. It shows the performance of 30 big companies in the US stock market and has a very significant influence on the market. Just because it focusses on the major companies of the US it is more volatile than the other indexes. Any significant change on a single listed stock can drag the index upwards or downwards.
Along with these types of stock market indexes, there are also other indexes available on the market, but these are the most popular of those.
So, in the above discussion, we have discussed what is stock market index with a complete definition of stock market index which I think is enough to give you a complete idea about this topic.