The world’s stock market is incredibly large and diverse, with a total market capitalization of $85 trillion at the beginning of 2021. This number has increased by 320% since 2009, as technological advancement has helped to make the market increasingly accessible.
There are certainly numerous ways to access shares and equities in the digital age, with indices offering a prominent example. Indices are essentially a collection of stocks designed to replicate a market, economy or industry, while they are used to measure economic performance in a specific sector.
Because of this, stock indexes and indices can be incredibly important to businesses. We’ll explore this below, while appraising the role that they play for businesses and investors alike.
What Are the Different Types of Index?
As we’ve already stated, there are various types of index across the globe, with studies showing at least some form of sustained correlation between international indices despite their many and obvious differences.
For example, the tech-driven Nasdaq index and AMEX alternative both correlate strongly, as they’re home to younger, small-cap assets that offer higher risk but potentially more expansive price growth in the future.
Conversely, blue-chip indices such as the S&P 500 and the Dow Jones Industrial Average feature some of the biggest and most profitable stocks in North America, with large-cap firms such as Google, Microsoft and Amazon amongst the most widely traded.
You can even find indices such as the DAX 30, which is another blue-chip stock market index comprising the 30 biggest German companies trading on the iconic Frankfurt Stock Exchange.
Similarly, the famous FTSE 100 is a selection of the 100 businesses listed on the London Stock Exchange, including Admiral Group, HSBC and Unilever.
Why Are Stock Indices Important to Businesses and Investors?
From a business and entrepreneurial perspective, stock market indexes can be useful for a number of reasons.
First, tracking the blue-chip indices such as the FTSE 100 or the S&P 500 (depending on your country of origin) can offer you a broad understanding of the wider stock market and the strength of the national economy as a whole.
This is because stock trading volumes tend to decline during instances of recession or economic contraction, as investors instead look to seek out relative safe-haven alternatives such as gold or (more recently) Bitcoin.
More niche indices such as the Nasdaq (which is dominated by technology brands) can also offer an insight into the performance of a particular market or industry. This is incredibly useful for entrepreneurs, whether they’re considering entering a new marketplace or diversifying their existing business interests.
If you’re an investor, indices can also be traded directly to provide a more diverse and appealing portfolio. Indices such as those listed above also offer a clear yardstick against which investors can compare the performance of individual stock portfolios, enabling them to make subtle strategic changes over time.
Most modern day brokers sites offer an indices trading account in the modern age, each of which will target index options and various investment vehicles.
This way, you can target a broad range of shares based on your knowledge and interests, allowing you to achieve sustainable profits over time.
