To understand what the stock market index actually is, let us first look at the definition of an index. By index, we mean the exchange indices which are actually only statistical measurements gathering the values of several different company titles.
It is with these indices that the performance of the stock index market can be evaluated, in other words, an exchange.
More precisely, an exchange has its performance evaluated using various indices. One generally finds a major index which gives the total overall performance of the exchange concerned. It is measured using the majority of the companies registered on this exchange (often the largest companies). Then comes what is called the sector indices which make it possible to evaluate the performance of a group of companies having certain common characteristics. This can either be relative to a common point concerning the industry sector of these companies or simply their size. With the information received from these various companies, the sector index of the group of companies concerned can be calculated.
The major index of an exchange indicates in a simplified way if this exchange is in a bullish or bearish trend. In France, for example, the major index for the Paris Exchange is the CAC40.
But other stock market indices allow us to perceive the economic activity level of a particular area. In this case, this index regroups companies from different exchanges. We find these indices in private company publications; the relative information can also be found on specialized websites. This is the case of the DJIA (Dow Jones), or S&P 500 indices.
To successfully trade on the stock market index, there are powerful tools that make it possible to adapt investments according to the performance of a given exchange index, that is to say with the rise or the fall, without the need to buy titles of several different companies. These tools are the investment companies with variable capital, also called SICAV, and the Common Investment Funds called CFP.
Generally, the stock market index is therefore similar to the Foreign exchange market on certain points except that one speculates on a group of assets (companies in fact) that form an index. But, the principle is the same for all of the markets on which it is possible to trade and that principle is speculating on the rise or the fall with the aim of making profits. Although it has its own rules, the stock market index is another way of investing money via the internet and of making money while speculating on an industrial activity sector or a given geographical area.
