Many shares in a single score:an index tracks them, nothing more.
A measure of the performance of a basket of securities, such as the S&P 500 or the FTSE 100.
An index cannot be bought directly; exposure is taken through products that track it, such as futures or CFDs.
In plain words
A stock index is a single number that tracks a chosen basket of shares, so that one figure can stand for a whole market or sector. When the shares in the basket rise on balance the index rises, and when they fall it falls.
See it move
Index and Share A
Why it matters
An index cannot itself be bought; exposure comes through products that follow it, such as futures, funds or CFDs. How the index is built matters, because where members are weighted by size a few large companies can account for much of its movement.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
An invented index holds three shares weighted by company size: A at 50%, B at 30% and C at 20%.
- 1A rises 2%0.50 × 2 = 1.0
- 2B is unchanged0.30 × 0 = 0
- 3C falls 1%0.20 × −1 = −0.2
- 4Index change1.0 + 0 − 0.2 = 0.8%
The index rises 0.8%, driven by its largest member.
A common mistake
An index rising does not mean that every share in it rose. A weighted index can climb while most of its members fall, if the largest ones go up.
Check yourself
Educational information, not investment advice or a recommendation to trade.