You may have heard of the term financial indices, but what exactly are they? Indices, also known as stock market indices, are the lists of stocks and any statistics that show a total value of any given stock in the index.
These indices are generally used to show the character of all stocks together. These characteristics can include trading in the same market, belonging to the same industry, or even the same or similar market capitalizations. Very often, these stock market measures are used as benchmarks in portfolios known as mutual funds. There are funds that contain the securities that are part of a certain index. Not surprisingly, these funds are called index funds.
There are a few different ways to categorize financial ratios. They can be known as broad-based indices, for example. This is generally a reflection of the entire stock market and is a reflection of investor sentiment about the economy. Many of the common indexes mentioned are broad-based indexes. These include, but are not limited to, the US Dow Jones Industrial Average and the S&P 500 Index.
On the other hand, there are many others that are considered specialized indices.
The difference is that the specialized ones only track certain market segments. Examples of this type of finance include the Morgan Stanley Biotech Index or the Linux Weekly News. These can track different aspects such as companies of a certain size or with certain types of management. Linux Weekly News tracks companies that use or sell products or even services that are based on the Linux operating system. Morgan Stanley Biotech (MVB), as its name suggests, tracks a group of companies in the biotech sector.
Another type of index is the price-weighted index. This includes some like the Dow Jones Industrial Average and the NYSE ARCA Tech 100 Index. These rates are based on the price that is considered in determining the value of the total pile. This makes each individual action in this type of finance extremely dependent on each other. There are a few subcategories when it comes to these guys. They include market value-weighted or capitalization-weighted indices, which are determined by the size of the company.
As you can see, learning the basics of financial indices can be exhausting. However, knowing the details about them can greatly improve your performance in the marketplace. Once you have a general understanding of the indices themselves and how they are determined, you are well on your way to doing much better than you might imagine.