What are Indices?
Indices is a collective term for individual Indexes. And an index is essentially a whole portfolio of securities represented as a single value – like a weighted average. Even if you’ve never traded before, it’s still likely that you’ve heard of indices in some way – names like Dow Jones, Standard & Poor’s, Nikkei and FTSE feature in the news almost every day.
There are thousands of different indexes, covering every section of the market. For example, the Dow Jones index represents the world’s 30 largest companies, the Standard & Poor’s 500 is made up of the 500 most widely traded US stocks and the NASDAQ consists of 5000 mainly technology stocks.
When an index moves either up or down, it’s a general representation of how different segments of the market are behaving. It’s also a useful indicator of the sentiment of investors – how confident (or otherwise) investors are. While indices vary in their accuracy relative to actual market conditions, they do tend to correspond generally with market movements. Because of this, each index has its own benefits to traders and analysts.
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