What Are Indices?

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What are Indices?
You may have heard of indices like Dow Jones, FTSE 100 and Nikkei 225. An Index measures a weighted average of a basket of stocks all grouped together.

For instance, the Dow Jones Industrial Average, otherwise known as the Dow, is a stock market index that measures the performance of 30 big companies that are listed on stock exchanges in the US.

The FTSE 100 is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalisation.

If the price of the FTSE 100 goes up, it shows that there are more people buying than selling and that the share prices of the companies contained in the index have generally risen in value. It also works the other way around, if more people are dumping the shares due to bad performance, then the value of the FTSE 100 falls.

Index prices rise and fall for many reasons. These can be economic like supply and demand or political, like tensions or trade wars. In order to impact the entire index, it must be a factor that impacts the sector as a whole (e.g. Technological or mining) or a region.

Unlike individual stocks or ETF’s, indices have a natural diversification with many stocks in one index, offering a unique combination of stability as well as predictability with the larger scale economic environment

Trade indices with AvaTrade on a variety of platforms - MT4, MT5 , the AvaTradeGO app or with our WebTrader.

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