Knowing the terminology of the stock market is key to understanding the ups and downs associated with your investments. One term that is brought up when discussing the market is "stock market index," which can be shortened to simply "index."
The index is defined as the value of a specific sampling of stocks. This sampling can include all stocks in a certain region or stocks that are all related to a specific type of business, such as electronics or housing.
An index is measured in terms of differences from the previous day. For example, the stocks in an index may have increased in value by 4 percent over the previous day or ended with a 2 percent loss over the end of the last day.
Stock market indices are used to determine trends in the market, which can then be applied to your portfolio. For example, if the NYSE Composite Index is down 5 percent, you can expect your portfolio of stocks in the index to also be down.
According to the U.S. Securities and Exchange Commission, some examples of stock market indices include the NYSE Composite Index, Dow Jones Industrial Average, Russell 2000 Index and the Nasdaq 100 Index.