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Definition of 'Index'

In financial markets, an index is a statistical measure of the performance of a group of securities or assets, such as stocks, bonds, or commodities. An index tracks the changes in the prices of the assets that it represents and provides a snapshot of the overall performance of the market or a particular segment of the market.

An index is typically calculated as a weighted average of the prices of the underlying assets, with the weights reflecting the relative importance of each asset in the index. Some of the most well-known stock market indices include the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite, which track the performance of different segments of the US stock market. In addition to stock indices, there are also bond indices, commodity indices, and indices that track other types of assets.

Investors use indices to gauge the performance of the market or a particular sector, and to compare the performance of individual securities or portfolios against the broader market. Investors can also invest in index funds or exchange-traded funds (ETFs) that track the performance of an index, providing exposure to a diversified portfolio of assets at a low cost.

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