A system that measures the value of something in contrast to its previous values or another defined standard or benchmark. It may also be described as a financial instrument used to represent a group of individual prices or data points.
An index is usually calculated as a single value from an array of prices and quantities during a certain period, making it a useful tool for tracking the price of a given asset or basket of assets.
Within financial markets, indexes are often based on a list of various stock quotes and are commonly used to track the performance of the stock market, through a statistical measure of changes – acting as a small sample that represents a bigger portion of the stock market as a whole. Each index follows a particular set of rules and calculation methodology, but ideally, the value variation of an index should reflect an exactly proportional change in the stocks. Therefore, a 5% change in a certain index should represent a 5% change, on average, of all stock markets that are being considered in the calculation.