Market Index

Rather than following thousands of individual share prices, investors watch indices to get a quick picture of the market. When people say "the market rose 1% today", they usually mean that a major index rose 1%.

An index is built from a defined list of securities and a method for combining their prices. Many indices are weighted by market capitalization, so larger companies have more influence. Others are equally weighted or, less commonly, weighted by share price.

There are indices for almost everything: broad stock markets, particular countries or regions, industries, company sizes, bonds, commodities and property. Well-known examples include indices of the largest companies in the United States, the United Kingdom, Japan and other markets.

You cannot invest in an index directly, but index funds and exchange-traded funds are designed to copy an index's performance. Indices are also widely used as benchmarks to judge whether a fund manager has done better or worse than the market.

Note: "Index" on its own is often used to mean a market index. In economics, an index can also measure other things, such as prices in the Consumer Price Index.