About Indices

Indices represent the value of a group of assets or stocks listed on a particular exchange. Major financial indices include the Dow Jones Industrial Average and FTSE 100, just to name a few. Different indices have their own criteria for determining constituent stocks. The Dow Jones Index represents 30 large public-listed companies traded on the New York Stock Exchange weighted by price, whereas the FTSE 100 represents 100 of the largest blue-chip companies in the UK weighted by market capitalisation. When the price of stocks listed on an index rise, the price of the index goes up. When the price of stocks listed on an index go down, the value of the index falls along with it. Indices are useful for providing valid benchmarks against which to measure investment performance for a given strategy or portfolio. By understanding how a strategy does relative to a benchmark, one can understand its true performance. Indices also provide investors with a simplified snapshot of a large market sector, without having to examine every single asset in that index. A sector-specific index can show the average trend for the sector.