Indices are baskets of assets that show how different parts of the financial universe are performing. There are indices that track stocks, forex, bonds, and commodities. Each index is composed of assets and the index reflects the fluctuating values of the constituents within it.
Typically, when people refer to indices trading, they are talking about gaining exposure to global stock markets such as the FTSE 100, S&P 500 and Nasdaq 100. Some indices are categorised by the size of the companies they represent, such as the S&P Small Cap 600 and S&P Composite 1500. This helps provide investors with many trading opportunities. Businesses within an index must meet specific criteria. Companies within the S&P 500, for example, must have a certain market capitalisation.
Indices can provide a quick way to assess the health of a particular area of the economy and gain investment exposure to it. Stock indices, for example, can be quite specific, only holding assets from a certain stock market sector, industry or particular country. The movement of the index — up, down, or flat — shows how that area is performing, as a whole.