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There are millions of financial assets in which to invest in the world and tracking each one’s performance is virtually impossible so Indices measure a small sampling of the market that represents the whole; any change in price of an Index is proportional to changes in prices of stocks (or other securities) that comprise the Index.
Investors can trade individual shares of stock (or other security) or trade Indices that measure the performance of a group of stocks (or other security). Just as the performance of a company‘s stock is indicative of its overall financial status, the averages determined by a stock market Index are used to measure the global performance of an entire financial market or segment of the economy.
Indices are groups of assets that are representative of a certain sector of the market (i.e. oil, Internet technology, etc.) or a market in its entirety (i.e. New York Stock Exchange). An Index provides a statistical measure of the price (or value) fluctuations within that segment of the stock market which is represented by the Index.
These bundled groups of stocks or other securities involve many aspects worthy of consideration before trading Indices. Rather than looking at and acting on the performance of one company’s stock, every company in the grouped Index should be examined since each one is instrumental in determining an Index value and the success of trading the Index as a whole.
The Dow Jones Industrial Average (DJIA) was the first Index and was created by Charles Dow in 1896. At that time the consisted of 12 of the largest publicly traded companies in the U.S. and averages were determined by simply adding up the stock prices of the 12 companies and dividing that number by 12.
The Financial Times Stock Exchange 100 Index (FTSE) represents a hundred of the largest companies publicly traded on the London Stock Exchange. If share prices go up (on average) the FTSE 100 will also rise and if share prices drop (on average), the FTSE 100 will follow suit and drop as well.
AvaTrade Indices review
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