Stock indices are special indicators used by players who trade in company shares. They are able to show the general direction of the market and make it clear whether its condition is positive or negative.
Stock index
Stock indices, which are also called stock indices, are generalized indicators that demonstrate the state of a particular economic sphere. As a rule, their calculation is based on a special algorithm for calculating the average of several components, the aggregate of which is called an index basket. In some cases, the calculation formula assumes the use of an arithmetic average, in others - more complex - averages.
In most cases, the components of the index basket are shares of large companies, which are in strong demand on the stock exchange and are often the subject of transactions. Since the price of shares in such transactions is established by agreement between the parties, it can be different, and the value of shares as a result can both rise and fall. Such ups and downs, in turn, are taken into account when calculating the value of the index and show the general direction of the market movement in a particular area. For example, if the stock index goes down for several weeks or even months, we can talk about the presence of a downtrend, and if it rises, an upward trend.
To ensure the objectivity of the index, its index basket, as a rule, includes a sufficiently large number of companies operating in various sectors of the economy. At the same time, many indices contain in their name a figure that reflects the total number of companies involved in its calculation.
Examples of stock indices
In total, today there are more than 2,000 different stock indices in the world, but only a few of them are really known. As a rule, the most interesting for market players are indices reflecting the state of a large economic block, for example, a state or even several countries.
Several indices can be called the most tracked: for example, the state of the American market reflects the Dow Jones Index (DJIA), as well as the NASDAQ and S & P500 indices. General trends in the European market can be monitored using the Euro Stoxx 50 and Euro Stoxx 600 indices, however, the largest economies of the Eurozone countries also calculate their own indices. For example, in Germany this role is played by DAX, in France - by CAC 40, in Great Britain - by FTSE.
The most famous indices in the Asian region are Japanese Nikkei 225 and Hong Kong Hang Seng. In Russia, two main stock exchange indices are calculated - MICEX and RTS, which have international designations MICEX and RTS, respectively.
