Stock Market – How Indexes Help You Make Investment Decisions

The stock market is a system of exchanges where people buy and sell stock – or shares – in different companies. These exchanges are where buyers “meet” sellers to trade stocks at a set price agreed upon by both parties.

Whether a company receives a lot of investments should be indicative of its perceived performance. Businesses that are performing well will typically receive more investment and trading action than others that are failing.

Changes to the Stock Market

Technology has changed the stock market immensely in more recent years. The evolution of computer technology and Internet tools has completely changed the way that investors buy and sell their stocks compared to past years.

The “exchange floor” formerly simply referred to the hustling hub of activity taking place on a physical floor where all the investors met to trade their stocks.

However, stock exchanges have been shifting to a virtual exchange forum since those older days. In fact, it will surprise no one if online exchanges eventually completely eliminate almost any face-to-face trading. However, don’t mistake this ease of online transactions as a substitute for investors still needing to know what they are doing.

Stock Market Indexes

Stock market indexes show the average performances of certain types of stocks or sectors of the economy. Similar stocks and similar sectors are collected together in the same stock market index.

Most people have heard of at least some of the more well known stock indexes. The Dow Jones, the New York Stock Exchange, and the S&P 500 are three of the most familiar stock market indexes mentioned in the news.

These indexes are used to gain an overview of how a certain sector or category of stocks is performing compared against the way the market as a whole is performing. You can learn a lot about company stock performance by looking at stock indexes.

Types of Indexes

One type is the price weighted index, used to analyze the prices of various stocks. This index, however, fails to take into account other important factors such as the size of the company and other pertinent factors about the stocks.

The market value weighted index does consider the size of a company. Changes in price are taken into account but not nearly as much as the number of shares and the size of the company.

Indexes are extremely useful for market analysts and investors alike. They are a great way to assess how the market is performing, which in turn can help you decide what you should do with your stocks – buy more or sell some of what you already have. These indexes provide a convenient source of aggregate market data so you don’t need to do the work of analyzing available data manually.