Are you aware of these stock market facts?
A market index is a basket of assets, which is representative of that particular asset market. The underlying asset can be any financial instrument such as stocks, bonds, commodities, hedge funds, etc.
In this reading, we will focus on stock market indices and a particularly interesting index known as NASDAQ 100.
What is an index?
Some popular indices are the S&P 500 of the New York Stock Exchange, NIKKEI 225 of Tokyo Stock Exchange, Sensex 30 of Bombay Stock Exchange, FTSE 100 of London Stock Exchange, etc.
The number next to the name of the index suggests the number of securities in that particular index. The constituents are chosen in a manner such that it represents the market.
For example, Sensex 30 of BSE is a basket of 30 stocks that are highly liquid with a large representation in the market. The calculation methodology for index construction may differ. However, the free float capitalization method is a widely used method for constructing the index. Sensex, Nifty 50, S&P 500, etc. make use of this method.
What does an index tell you?
The index is primarily used as an indication of the overall market sentiment. They are used as a benchmark by investors to gauge their investment portfolio performance. It is used as a measure of past performance by the overall market. There are also sector-based indices such as Bank Nifty, which tell you how the specific sector is faring.
Quick view on NASDAQ 100
NASDAQ 100 is one of the most popular large-cap growth indices in the world traded on the NASDAQ stock exchange. It is all traded electronically around the globe. NASDAQ 100 includes some of the biggest companies like Apple, Amazon, Microsoft, Intel, Netflix, Starbucks, Tesla, etc. It has only non-financial companies and has a separate index for financial companies named NASDAQ Financial 100. It also includes foreign companies. It uses a modified capitalization method for index construction. With the inclusion of the world’s top companies, NASDAQ 100 represents modern-day industrials.