There are indices for every sort of market, but retail investors are probably most familiar with those related to stock markets whose ups and downs are regularly reported on the TV and radio. Indices reflect the overall value of all the stocks included, calculated on a regular basis throughout the day.
In the UK, the most popular is the Financial Times Stock Exchange 100 Share Index (known as the FTSE 100 or the Footsie). This was started in 1983 with a base of 1,000 and is made up of the share prices of the biggest 100 shares in the market. Its moves up or down are considered to reflect the general mood and direction of the UK market. The index is calculated by FTSE, an independent company co-owned by the London Stock Exchange and the Financial Times. The company calculates thousands of other indices a day, including the FTSE All Share, which is made up of the prices of every listed London share.
In the US, the nearest equivalent benchmark index is the Dow Jones Industrial Average, which is calculated by the Dow Jones Company, the publisher of The Wall Street Journal.
• See Tim Bennett’s video tutorial: What is an index?