What are indices, and why should I care about them?

Category: indices-faq

An index is basically an average of a number of assets (usually stocks). They allow you to track and invest in the performance of entire stock markets, or specific sectors within them, rather than trading individual names.

Market participants follow the performance of major stock indices because they provide a useful gauge of investor sentiment. Index traders tend to speculate around crucial economic news such as interest rate decisions, labour market data, and GDP releases, in a manner similar to FX traders.

This is because indices offer a way of expressing an opinion, long or short, on an entire economy in a highly accessible and affordable way.

Investing in indices offers your portfolio access to an entire asset class such as stocks, with the diversification that comes with having your investment spread across a multitude of companies rather than just one.