Indices

A stock index is a weighted benchmark used in measuring the performance of an entire stock exchange or a sector of a stock market. The value of a stock index is calculated on the basis of a change in the price of the stock assets listed in a particular sector or a particular exchange being measured. For instance, the value of a stock index such as the Nikkei 225 in Japan is a function of the change in prices of the stocks of the 225 largest companies in the Japanese stock market.

What makes stock indices tradable is the fact that the change in price of the component stock assets produces a change in the value of the index, and this intraday volatility can then be used by traders to setup long and short trades on specific indices.