Index definition

An index is a benchmark that measures the price performance of a selected group of stocks. It can represent a market, a sector, a country, an exchange, or an investment theme.

A stock index can be weighted by market capitalisation, by price, or equally. A market-capitalisation-weighted index gives larger companies more sway over its movement than smaller ones.

Traders and investors use an index to track market trends, benchmark a portfolio, and take exposure to a broad segment in one position. That exposure comes through index funds, exchange-traded funds, futures, options, or CFDs linked to the index.

Index Example

The S&P 500 index tracks 500 large US-listed companies.

When many of its larger companies rise, the S&P 500 moves higher. When major components fall, the index declines. You can read the S&P 500 to gauge broad US stock-market sentiment or trade products linked to it.