What is Stock Market Index?
Stock market index is an index that measures a stock market. An Index consists of a group of stocks which represent some section of the overall stock market.
We have thousands of companies listed on stock markets, hence, it is almost impossible to monitor each company. This is why stock market indices are created. Market indices bring together a select group of company stocks and regularly measures them to show the performance of the overall market or a certain segment of the market.
What is the Stock Exchange?
The stock exchange is a market place where all the tradable securities like shares, bonds, derivatives, commodities are listed.
We have two major stock exchanges in India:
How Are Stock Indices Formed?
An index consists of similar stocks. This could be on the basis of industry, market capitalization, company size or another parameter. Once the stocks are selected, the index value is determined. This could be a simple average of the prices of the components. In India the free float market capitalization is commonly used rather than prices to calculate the value of an index.
The most common kinds of indices are – Price Weighted and Market Capitalization Weighted index.