Indices meaning stock market

Log in or sign up to add this lesson to a Custom Course. Login or Sign up. Sam is getting interested in investing and is trying to understand all the financial jargon he's seeing in the news about the stock market, and something about an index rising. In this lesson we'll help Sam get a better idea of what the stock market is and how it works. First, what is stock? Stock represents the equity ownership of a company.

When a company goes public through an initial public offering IPOthe company raises capital by selling off shares of ownership. Each share represents a very small fraction of ownership in the company.

Investors buy shares of stock for two kinds of return: Appreciation refers to the stock increasing in value over time as people become willing to pay more for those shares of ownership. Dividends refer to the practice of a company returning some of its profits to the shareholders. It's unlikely that Sam will ever buy a stock at the IPO.

Most of the time these buyers belong to large financial institutions. The secondary market takes place on the various stock exchanges such as the New York Stock Exchange and NASDAQ. Here buyers and sellers of all kinds, both individuals and institutions, trade shares that may have been originally issued decades ago.

The stock market functions in a classic supply and demand economic model. When supply is high because everyone is selling, the price of a stock goes down. When demand for the stock's future growth and profits goes up, investors drive the price up further. When Sam hears on the evening news that the market is up or down what does that mean? The market is made up of thousands of different companies. Putting these different stocks into groups makes it possible to quickly summarize how a particular industry or segment of the economy is performing, as well as the market as a whole.

An indexreferred to in the plural as indices, represents a collection of different stocks that act as a benchmark for the total market or smaller sectors of investments in the market.

China Indexes | FTSE Russell

Investors use benchmarks to evaluate the potential or actual success or failure of a specific investment. Beating the index over a long period of time means that an investor is doing well. An index creator designated the stocks that make up the portfolio and can change the stocks in the index as companies shrink or grow. These indices each provide a quick way to tell at a glance how the overall stock market is doing.

The price of the index is equivalent to the value of one share of each company in the index. This collection of stocks serves as a strong indicator of the United States economy in general, and is often used by investors as a benchmark to compare other investments.

The NASDAQ index refers to the combined total value of each share making up the NASDAQ exchange. NASDAQ stands for National Association of Securities Dealers Automated Quotations. The NASDAQ index lists many tech companies, as well as many volatile and young companies compared to the New York Stock exchange. Because of this, it often serves as a stronger benchmark than one of the other indices.

When the media generally speaks of the market, it often is referring to the Dow Jones Industrial Averageor just the Dow. The Dow is made up of 30 of some of the largest and most well known companies in the world, such as Apple, Disney, Dupont, and Wal-Mart. Because the index is only made up of 30 companies that are not always of similar size, dramatic changes in one company can have an unusually significant impact, or almost be a complete non-event. The stock market refers to the buying and selling of stockswhich are shares of equity ownership in companies.

Stocks can be purchased at an initial public offering for the company to raise funds, or the secondary market through exchanges. When people refer to the stock market going up or down, they are generally referring to whether or not a specific index has gone up or down. The index tracks a specific portfolio of stocks designated by the index creator. Investors use these indices as a benchmark for comparing the expected or actual success or failure of an investment.

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Students' quiz scores and video views will be trackable in your "Teacher" tab. You can share your Custom Course by copying and pasting the course URL. Understanding what the stock market is and how indices summarize the market are essential pieces of knowledge for an investor. Let's take a look at what these terms mean and how investors apply these concepts.

The Stock Market Sam is getting interested in investing and is trying to understand all the financial jargon he's seeing in the how to make money in saints row 3 about the stock market, and something about an index rising.

Indices When Sam hears on the evening news that the market is up or down what does that mean? Start a FREE trial No obligation, cancel anytime. Want to learn more? Select a subject to preview related courses: Lesson Summary The stock market refers to the buying and selling of stockswhich are shares of equity ownership in companies. Register for stock market history chart recessions free trial Are you a student or a teacher?

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