Trader's Glossary


Indices are imaginary portfolios of securities which represent the relative health of a given market or sector of the economy. For example, the S&P 500, which is one of the most popular benchmarks of the U.S stock market, tracks the value of 500 of the largest American companies, and represents around 75% of the American equity market. Its value represents the aggregated performance of all the stocks that comprise it. Though each index has its own calculation methodology, what investors look for is the percentage that an index rises or falls above or below its base value. Indices are not technically investment vehicles; however index mutual funds and exchange-traded funds allow investors to take positions on the changing fortunes of the economic sectors represented by indices.