Indexes are the statistical measure of change in an economy or in a securities market whether it is a local economy or securities market or a global economy or securities market. So Indexes are an imaginary portfolio made up of certain securities such as petroleum securities and when you looked at a petroleum index you should see the performance of that type of stock overall. It is like a smaller picture of the whole.
You as an individual could pick the same stocks as those on the Standard & Poors 500 index. Then your stocks would reflect the Indexes of Standard & Poors 500. And you could expect the performance to mirror the S&P. or you could chose a sampling of the entire stock market and your portfolio would reflect the broader stock market performance.
If you chose the same stocks as Standard & Poors then you would be choosing stocks that meet Standard & Poors conditions. Standard & Poors 500 are Indexes that sets a common benchmark for the entire stock market. It is also believed to be the best gauge or picture of the United States equities markets.
There are other Indexes such as the FTSE 100 Index and the Amex Composite Index. Each index has its own set of calculations and methodology and it is usually expressed in terms of a change from the base value. There are several purposes for an index one of which is that the index shows the performance of a group of securities not just for one security. A second one is that an index shows the performance of a certain tock such as a technology stock if the index is based on that particular industry over time.
Standard & Poors 500 Index contains 500 stocks of American Corporations. All of the stocks have to be traded on the two largest stock markets in the United States which are the NYSE and NASDAQ. These are two different types of stock exchanges. The NYSE is a physical stock exchange where there are actual people and the trades are carried on in the building and on the trading floor. The NSADAQ is an electronic stock exchange and there is no actual physical trading floor with actual physical traders.
Besides this requirement the company must be a United States company and this includes locations and other specifics. It must have a minimum market capitalization in excess of US dollar five billion. It must have a minimum of a 50 percent public float. This means the portion of outstanding shares in the hands of public inventors versus in the hands of officers, directors and the like.
Another requirement is it must be financially viable or have had positive earnings according to certain guidelines for four consecutive quarters. It also must be an operating company and not something like a holding company. It also must have adequate liquidity.
The S&P tries to maintain minimum turnover so it changes only slightly. Some companies in the Index are Microsoft and GE.
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