Stock Market Index Definition – What is Stock Index? | CFI

stock market index

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.
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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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