Indices Definition – What are Indices? | CFI

indices

The term “indices” is the plural of the word “index”, and in trading terms, an index is a way of tracking the performance of a group of [assets] by a standardized method.

 

Indices usually track and measure a basket of stocks and can either be a broad mix to capture the whole market or more specialized to track a specific market industry or segment.

 

Examples such as the S&P 500, FTSE 100, or DAX 30 track a broad selection of stocks traded on specific [stock exchanges]. Whereas, indices such as the Philadelphia Gold & Silver Index, Nasdaq biotechnology index, and PSE mining & oil index, as their names suggest, follow and track baskets of stocks from specific industry sectors (or countries) and allow investors to be more selective in their investment strategy.

 

Indices are often used by investors as a benchmark to measure the performance of investment portfolios and often the returns from a portfolio will be measured against, as an example, the FTSE 100’s performance (return) over a specific time period.

 

Each global index has its specific method of calculating the hypothetical value, and this will be based on the weight that each stock, or bond, has in the index; and the relative price movements of each.

 

Investors cannot invest directly into an index and therefore various funds have been created that try to mimic the performance of these indices for investors, while traders can bet on fluctuations in the hypothetical value using instruments such as [CFDs], [ETFs], and [Futures].

 

Key takeaways:

 

  • Indices are a way of tracking a basket of stocks, bonds, or various other financial instruments
  • There are thousands of indices listed around globally
  • Investors may use indices to measure the performance of investment portfolios against
  • Indices may track a wide range of stocks or be more market/sector-specific and track a select number of stocks in a specific industry sector
  • Trades cannot trade indices directly, but can bet on price fluctuations using CFDs, ETFs, and Futures
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Forex and CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The possibility exists that you could sustain a loss in excess of your deposited funds even if a stop loss is used and therefore, you should not speculate with capital that you cannot afford to lose and be aware of trading risks. Credit Financier Invest (Mauritius) Ltd provides general information that does not take into account your objectives, financial situation or needs. The content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary.

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