What is a Shares Index?
A Shares Index (also known as a Stock Index) is a statistical measure that represents the performance of a group of selected stocks. These stocks are usually chosen based on specific criteria such as market capitalization, sector, or geographical location. The index acts as a benchmark to gauge the overall health and direction of a particular market or sector.
How a Shares Index Works
Each index tracks a basket of companies’ shares, combining them into a single value that moves up or down based on the collective price movements of the underlying stocks. The companies in the index may be weighted differently — often by their market capitalization or share price — meaning larger companies have a greater impact on the index value.
Popular Shares Indexes Worldwide
S&P 500 (USA) – Tracks 500 of the largest U.S. companies.
Dow Jones Industrial Average (USA) – Follows 30 major U.S. blue-chip companies.
FTSE 100 (UK) – Represents the 100 largest companies listed on the London Stock Exchange.
DAX (Germany) – Measures the performance of the top 40 companies on the Frankfurt Exchange.
Nikkei 225 (Japan) – Includes 225 large Japanese companies from the Tokyo Stock Exchange.
Why Shares Indexes Matter
Market Benchmarking: Investors and analysts use indexes to compare the performance of their portfolios.
Economic Indicator: Index movements often reflect the broader economic outlook of a country or region.
Investment Products: Indexes serve as the foundation for various financial instruments like index funds, ETFs, and index futures.
Trading the Shares Index
Instead of buying individual stocks, traders can speculate on the overall movement of an index through:
Index CFDs (Contracts for Difference)
Index Futures
Index ETFs (Exchange-Traded Funds)
Options on Indexes
These instruments allow traders to gain exposure to the entire index with lower capital and better diversification.