A stock index is a crucial part of financial markets, but it is nothing more than a group of companies under one name, differently said, the top shares from a particular exchange.
For example, the FTSE 100 represents the largest 100 companies traded on the London Stock Exchange. If the share price of these companies goes up-, then the FTSE 100 will rise with them. And if they fall, it will drop.
- Dow Jones, Nasdaq and S&P (US)
- DAX and CAC (Europe)
- Hang Seng, Nikkei and ASX (Asia-Pacific)
The size of each company is taken into account since the size is calculated using a capitalization-weighted average. The more a particular company is worth, the more its share price will affect the index as a whole.