Stock index definition (2024)

FAQs

What is an example stock index? ›

A stock index is commonly used by investors as a benchmark to gauge the performance of their portfolio. Examples of stock indexes include the Dow Jones Industrial Average (DJIA), the Nikkei Stock Average, the S&P 500, the Nasdaq Composite, and the Wilshire 5000.

In the United States, the three leading stock indexes are the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite.

In its simplest form, adding the price of each stock in the index and dividing by the total number of companies determines the index's value. A stock with a higher price will be given more weight than a stock with a lower price and will thus have a greater influence on the index's performance.

A stock index is a list of stocks that is created to gauge the whole market, or even a sector of the market. A stock exchange, on the other hand, is the actual place where you can buy and sell stocks, bonds, and other securities that are listed on different indices.

A stock market index shows how investors feel an economy is faring. An index collects data from a variety of companies across industries. Together, that data forms a picture that helps investors compare current price levels with past prices to calculate market performance.

Basic stock chart terms to know

The open is the first price at which a stock trades during regular market hours, while high and low reflect the highest and lowest prices the stock reaches during those hours, respectively. Previous close is the closing price of the previous trading day.

The S&P 500—the Standard & Poor's 500 Index—is considered to be one of the best measures of U.S. stock market performance, tracking 500 of the largest and most stable publicly traded companies in the country.

The S&P 500 and Dow Jones Industrial Average are the top large-cap indexes. Notable mid-cap indexes include the S&P Mid-Cap 400, the Russell Midcap, and the Wilshire US Mid-Cap Index. In small-caps, the Russell 2000 is an index of the 2,000 smallest stocks from the Russell 3000.

The most frequently quoted market indices are national indices composed of the stocks of large companies listed on a nation's largest stock exchanges, such as the S&P 500 Index in the United States, the Nikkei 225 in Japan, the DAX in Germany, the NIFTY 50 in India, and the FTSE 100 in the United Kingdom.

Index trading provides broad market exposure, fostering stability and long-term growth through diversification. Stock trading demands detailed analysis for higher potential returns, yet carries greater risk and volatility.

Is it better to invest in index or stocks? ›

Individual stocks may rise and fall, but indexes tend to rise over time. With index funds, you won't get bull returns during a bear market. But you won't lose cash in a single investment that sinks as the market turns skyward, either. And the S&P 500 has posted an average annual return of nearly 10% since 1928.

Index funds are investment funds that follow a benchmark index, such as the S&P 500 or the Nasdaq 100. When you put money in an index fund, that cash is then used to invest in all the companies that make up the particular index, which gives you a more diverse portfolio than if you were buying individual stocks.

New York Stock Exchange

But it has remained the largest stock exchange in the world by market capitalisation ever since the end of World War I, when it overtook the London Stock Exchange. In 2012, the NYSE was taken over by an American futures exchange group, Intercontinental Exchange.

Like stocks, you invest in an index fund by purchasing individual shares. You then own a percentage of the overall portfolio equivalent to how many shares you bought and are entitled to the fund's returns on that pro-rata basis. For example, say that the ABC Fund releases 50% of its value in the form of 100 shares.

The New York Stock Exchange (NYSE) is the largest stock exchange in the world, with an equity market capitalization of over 25 trillion U.S. dollars as of December 2023.

In 1966, NYSE begins a composite index of all listed common stocks.

A stock index futures contract binds two parties to an agreed value for the underlying index at a specified future date. For example, the March futures on the Standard & Poor's 500 Index reflects the expected value of that index at the close of business on the third Friday in March.

The S&P 500 is up 252.38 points, or 5.3%. The Dow is up 63.77 points, or 0.2%. The Nasdaq is up 672.02 points, or 4.5%. The Russell 2000 is down 79.13 points, or 3.9%.