Index
An index is simply a tracker for a group of securities. It allows market observers to gauge the overall movements of a market or a section of a market, and in some cases invest in that market or subsection. The most famous and most commonly cited is the Dow Jones Industrial Average. Referred to as “the Dow,” it was originally made up of 30 of the most important industrial companies traded on the New York Stock Exchange. Other famous examples include the S&P 500, which tracks 500 large stocks in the U.S.; the FTSE 100, which tracks 100 large companies listed in London, and “the Nikkei,” the Japanese counterpart to the Dow.
The idea is that an index can be used as a gauge of a broader portion of the market than any individual stock or instrument. This allows fund managers to track their performance against “the market,” allows investors to attempt to match perfectly the performance of the broad market, and gives newsmen and women something to refer to when they discuss the day’s market movements.