What is a stock market index?

Index: A figure that summarises a group of stocks, for example the AEX with the 25 largest Dutch companies. It shows how that group does as a whole.

An index is like a basket of shares with one number attached. The AEX, for example, holds the 25 largest companies on the Amsterdam exchange. If the number rises, those companies together are worth more.

In most indexes big companies count for more than small ones. A sharp fall in one big company can therefore move the whole index.

You cannot buy an index itself. There are funds, such as ETFs, that follow an index as closely as possible. People also use an index to compare their own results against.

Example
An index stands at 900 points and rises to 927 points in a month. That is 27 points more, or 3 percent. If you had 1,000 euros in a fund that tracks that index exactly, it would now be about 1,030 euros, before costs.

Watch out
An index with few companies, or many from one sector, is less spread out than its name may suggest.

Read more in the guide What is an ETF, really?.

Learn it step by step
In the free Academy you learn terms like this in short lessons, with a certificate for every level.
Take the free lesson