A stock market index, also known as a stock index, is a way of measuring the performance of the stock market or a section of it. it helps investors to gauge the overall performance of the market by comparing past stock prices with current price levels. for example, a national index shows the performance of a nation's stock market, and it reflects the investors’ sentiment on that country’s economy.
Before you consider learning how to trade stock indices, you need to know what the stock market is, and how you can measure its performance to determine the best time to buy or sell. the stock market is a marketplace where investors buy and sell shares. shares, stocks, or equities are assets that transfer fractional ownership of a company to an investor. the stock market provides a platform where the company can issue shares to the public for investors to buy and sell the shares. the stock market is essential to economic development because it is a way for companies to access capital easily from the public, while allowing investors to make profits in the form of dividends.
Example of a stock market index
Different countries have different stock exchanges, and a new trader needs to understand them so that they can determine how to trade stock indices in those stock markets. today, it is estimated that over 630,000 companies are traded publicly in the world. let’s look at the names of some of the largest stock exchanges from different countries by market capitalization.
- New york stock exchange (nyse): the nyse is the largest stock exchange in the world, with over 2,400 listed companies. it represents nearly 40% of the world’s total stock market value, and by 2018 it had a market capitalization of $23.23 trillion.
- Tokyo stock exchange (tse): the tse is the largest stock exchange in japan and has over 3,575 listed companies. it has a market capitalization of $6.22 trillion.
- Shanghai stock exchange: (sse): the sse is the fourth largest in the world, and the largest in the people's republic of china, with a market capitalization of $5.01 trillion.
- London stock exchange (lse): lse is the largest stock exchange in europe, and the sixth largest in the world, with over 3,000 listed companies, and a market capitalization of $4.38 trillion.
- Toronto stock exchange (tsx): tsx is the largest stock exchange in canada. it has over 1,500 listed companies, with a market capitalization of around $2.29 trillion.
key takeaways
- A stock market index is a way of measuring the performance of the stock market or a section of it.
- It helps investors to gauge the overall performance of the market by comparing past stock prices with current price levels.
- To measure market movement, investors follow different market indexes such as nasdaq composite, dow jones, and s&p 500.