Index
A benchmark measuring the performance of a selected group of securities — the S&P 500 tracks 500 large US companies.
A market index is a composite value that tracks the performance of a defined basket of securities. Indices serve as benchmarks, allowing investors to evaluate performance and gauge overall market health.
Well-known indices include the S&P 500 (500 large-cap US stocks), the Dow Jones Industrial Average (30 blue-chips), the NASDAQ Composite (tech-heavy), and the Russell 2000 (small-cap US stocks).
You cannot directly invest in an index — but you can buy ETFs or index funds that replicate its composition. Index futures and options allow traders to take directional views on broad market moves.
Example
The S&P 500 is weighted by market cap. Apple's weight is ~7%, so a 5% move in Apple alone shifts the index roughly 0.35%. A broad sector selloff moves the index more because hundreds of stocks move together.
Related Terms
Bear Market
A sustained decline in prices of 20% or more from a recent high. Pessimism and selling pressure dominate.
BeginnerBenchmark
A standard index or rate used to evaluate investment performance — the S&P 500 is the most common equity benchmark.
BeginnerBull Market
A sustained period of rising prices, typically defined as a 20%+ gain from a recent low. Optimism and buying pressure dominate.
BeginnerDiversification
Spreading capital across uncorrelated assets to reduce risk. When one position falls, others cushion the blow.
BeginnerMarket Capitalization
The total market value of a company's outstanding shares. Market Cap = Share Price × Shares Outstanding.
Beginner