What is a stock market index?

A stock market index is a single number that sums up how a group of shares is doing. Instead of checking 500 companies one by one, you look at one figure that tells you whether, overall, they went up or down.

How an index is built

An index provider picks a set of companies according to published rules, for example “the 40 largest companies on the Paris exchange”. It then adds their share prices together with weights. In most big indices the weight depends on the company’s size (its market capitalisation: share price × number of shares). A huge company moves the index far more than a small one.

Index	Market	Roughly what it covers
S&P 500	United States	500 large US companies
Nasdaq 100	United States	100 large non-financial companies listed on Nasdaq, heavy in technology
Euro Stoxx 50	Euro area	50 large euro-area companies
DAX	Germany	40 large German companies
PSI	Portugal	The main Lisbon-listed companies
Nikkei 225	Japan	225 large Japanese companies

Points, not euros

An index is quoted in points. The level itself means little: what matters is the change. “The DAX rose 1%” tells you the weighted average of its 40 companies rose by about 1% that day.

Why everyone watches them

Indices are a quick read on the mood in a market, and they are the yardstick professional fund managers are measured against. They are also the basis for index funds and ETFs, which let you own a small slice of every company in an index in one go. See ETFs and single shares for how that works.

Index levels are licensed by the companies that calculate them, which is why we only show them through providers that hold that licence.