How does a stock market index work?

A stock market index is a financial indicator which measures the performance of a basket of stocks traded in the respective stock exchange. For example, the S&P 500 Index lists the top 500 companies with the highest market value in the NYSE.

Why is the stock market index important?

A stock market index often represents a specific section of an exchange such as the most valuable companies or a specific sector like finance. Indices allow investors to gauge the health and performance of business activities.

What is the best way to analyse a stock market index?

Each stock market index slightly differs from others, and the index details such as components, weighting, calculation and trading hours must be studied. Fundamentally, factors that can affect equity prices, like earnings reports, or represented sectors, like new regulations, have a strong impact on the index.

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