Indices, or indexes as they are also known, are assets which are grouped together; either representing a specific sector of a market or a market in its entirety. A stock market index’s overall level is calculated by taking into account the current prices of all the different assets within the index; this means that shifts in individual stock prices lead to the index rising or falling in value.
Stock indices are a hugely important part of the financial markets, with indices like the FTSE 100, Dow Jones and NASDAQ among the biggest names in the financial world.
What is an index?
A stock index is a measurement of the price performance of a group of shares from a particular exchange. The FTSE 100, for example, represents the 100 largest stocks trading on the London Stock Exchange. If those stocks increase in price, the FTSE 100 goes up. If those stocks decrease in price, the FTSE 100 goes down.
How do I trade indices?
Because they are purely notional, the only way to trade an index is via a product that mirrors its performance. These products can include index funds, ETFs, futures, CFDs and spread bets. It is important to manage your risk when trading indices, as trading indices means trading a derivative instead of a physical asset.