What is a stock market index and how is it used?

A stock market index is a measure of the overall performance of a group of stocks that are representative of a particular market or industry sector. An index is essentially a composite of the performance of the underlying stocks that make it up. It is calculated by taking a weighted average of the stock prices of the component stocks.

Stock market indices are widely used as a benchmark for measuring the performance of investment portfolios and individual stocks. They are also used by traders and investors to track the overall direction of the market and to help inform trading decisions. Some of the most wellknown stock market indices include the S&P 500, the Dow Jones Industrial Average, and the NASDAQ Composite.