A stock index is an indicator of the stock market that acts as a thermometer: it can make you see, at a single glance, the majority movement of the companies in said market. There are multiple indices around the world. They are essential to analyze how a series of listed assets with specific characteristics varies.
You go back to the late 1800s when a US journalist noticed that the shares of many of the companies on the stock market were fluctuating simultaneously. To express whether the trend was upward or downward, it created a list of companies of the time: the representation of the movements of all of them would make up an index that would reflect the generalized trend of the market. Stock indices were born.
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What is a stock index?
A stock index can be understood as a basket in which you have a diverse sample of products, and the price of each of them will be representative. It will give you a perception of the generalized situation: just looking at this basket, you go to perceive the market situation. Therefore, they measure the growth or decrease in the value of the shares that compose it to give an image of the behaviour of the market as a whole.
Let's look at an example: you have often heard that “the stock market falls 0.15%”. In this case, what is being discussed is that the market values of the thirty-five companies of the leading stock index of the Spanish market, called IBEX 35, have fallen. If you want to learn the details of Stock Market Valuation Fundamentals, please visit Skillfin Learning. Skillfin Learning offers the best course online.
Thus, a stock index is a numerical value used as a reference to understand how a series of companies, which may be from the same or a different sector, are performing on the stock market.
Why learn stock market basics?
- The indices are a reference to know-how in the evolution of the stock markets.
- They are widely used by managers to carry out comparisons between all of them and to be able to operate and invest based on the data under analysis.
- Besides as a guide to give a market perspective, these economic indicators can be used to analyze and study options at the time of measuring the profitability and risk of the market.
There are various institutions, public bodies and private companies that produce indices. All of them are usually under the supervision of the organizations established in each country for this purpose.
What are the leading stock indices?
Currently, there are many stock indices of various types: depending on the geography, they can be national or global, for example, according to the sectors or the size of the companies that comprise it, or even according to the type of asset. Many of them are made up of larger companies due to the relevant quotes carried out in them.
If you want to learn more about long-term investments, aspects for which stock indices are essential, you can access this content online.