Sometimes, and this is especially true for beginner traders, Indices may be confused with shares. In reality, there is quite a big difference between the two.
Indices are the price performance measurement of a group of shares or, more simply, the accumulated value of a group of companies.
For example, a popular Index is the S&P 500, which is, in fact, a measurement of the accumulated value of 500 large-cap companies in the USA.
Similarly, the FTSE 100 measures the total value of 100 blue-chip companies listed on the London Stock Exchange.
When trading Indices you are not only trading on a specific stock, but on an entire group of stocks, where you gain profits from the changes in their combined value.
Other examples of popular indices include:
Dow Jones (30 most traded Industrial companies - The most popular Index in the world)
Nasdaq Composite Index (All the Technological companies traded on the Nasdaq stock exchange)
DAX (40 major German blue-chip companies traded on the Frankfurt Stock exchange)
💡Tip
Trading indices in most cases is less risky than trading individual stocks, as indices are not susceptible to sudden significant changes in daily value (for example, unlike individual stocks, it is highly unlikely that an index will rise or fall 10% in one day)