Tuesday, July 05, 2011

Stock Market Index

A stock market index is an approach designed for measuring a distinct segment of the stock market.
It is intended as a standard for evaluating the functionality of a certain segment of the stock market.
stock market buy and sell
A good stock index reflects the trend of a select group of properly diversified and remarkably liquid stocks. The common man more often than not uses this as a guidance to where the economy is headed and based on that, makes his investment decisions.
There are quite a number of popular stock market indices that people use, out of which some of the more popular ones will include S&P 500, DJIA, NASDAQ and the FTSE indices.
Something that I would like to point out here is that some people refer to these as stock market indexes which is not correct. The proper term would be stock market indices.

Stock Market Index

This can probably be categorized into numerous systems.

A global index can comprise of organizations from different countries and areas in the world.
A country's index is all about the functionality associated with the stock market of that particular country and thus like i mentioned earlier, provides a clue to the nature of its current economy.
The index is normally determined by means of acquiring the weighted average of the prices of the stocks in that particular group of companies, where the weights are generally in proportion to the market capitalization of the company.
Market capitalization in simple terms means the market valuation of companies. In equity market, the size of company is determined by market capitalization of that company.
Market-value weighted indexes are found by adding together each stock's market capitalization, which is the current market price multiplied by the number of shares outstanding. This value is then divided by the base index value.
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