Index, stock market index

What is an Index?

Indices are a method of measuring the value of a market segment. The best known indices measure the performance of stock markets. An index is a mathematical construct, so you cannot invest in it directly. However, there are index funds that attempt to resemble the development of indices.

Some important stock market indices:

Dow Jones Industrial Index30 major US companies
S&P 500500 major US companies
DAX30 major German companies
Nikkei 225Most important Japanese index
Hang seng IndexIndex of the Hong Kong stock exchange

Types of indices

In a market-value weighted or capitalisation-weighted index such as the Hang Seng Index, the size of the companies are factored in. Here, a large change in the price of the largest component of the index can result in a relatively large change of the index value.

In a price-weighted index such as the Dow Jones Industrial Average, the price of each component stock determines the value of the index. Here, the price movement of even a small single company can strongly influence the index.

Trading stock market indices

Trading index funds works on the same underlying principles as trading stocks. Here at tradimo, we will add plenty of lessons on stocks trading in the future. Technical analysis can also be applied to trading index funds:

From Japanese candlesticks to the Fibonacci indicator, technical analysis is the mathematical approach to trading.

You can also discuss index funds in our forums:

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