What is stock market index ?

What’s an Index?
Let’s start with the basics of index number. There are so many ways and methods to calculate indexes. Now remember one thing that the numbers represent the different base value but not the same or original value. Although this number is not that much important. The thing which is to be considered is the change in percentage after the interval of time. The fluctuation and the up and Down helps you in having some ideas about how index is performing. The up and Down and the fluctuation of the trading in market gives the sense direct the investor which help himself to protect his investment. Now note one thing the index doe not reflects the market but it shows the market it belongs. Most of the stock indexes do not reflect the total market but only the portion of the market, even those who claims to reflect the whole market.

The Dow
One of the oldest indexes is Dow Jones industrial index. It is the widely known and widely quoted index. It can be consider as the barometer of the market. In reality it was just only the simple average of stocks, while index splits, and other transaction. Now days more sophistication is necessary for trading in stock market. For more information you can also visit the website of the Dow Jones’ Indexes . Currently the Dow is having about 30 stocks and although every stock represents the most powerful and leading companies of U.S.A
The Dow index is the most important and the major index that’s price weighted. It means that if the price fluctuates just by 1$ (a dollar). It effects the same like the changing of price of 30$ stock. Or we can say, it affects the same on the index in spite of the change of percentage in stock.
Over the years, the calculation of Dow takes into the numerous accounts. It is quite possible to make it historically keep index meaningful by adjusting math. You must know that the Dow represent the one fourth of the market, so in other words it has won the confidence of the investors. And let me tell you one more thing that the Dow does not represents the mid size or small companies like others.
S and p 500
The s and p 500 is of the most repeatedly index by financial experts and professionals, like the envoy of the overall market. It has 500 of the broadly traded stocks and the leans which are moving towards the larger firms. It is covering nearly 70% of the total value of the market so it could be considered as the true leader of the market.
The Nasdaq Composite
The Nasdaq Composite belongs to an index of stock market of the common stocks and it is poised of tatal stocks in the Nasdaq Market. Even it is greater than 5,000. Even though it is broad in coverage, it is deeply entitled to technology stocks. Like some big companies which influence the stocks like Microsoft.

you can read more in next articles about stock exchange index, shanghai stock index, yahoo sotck index etc…