An index is a method to track in a standardized way the output of some group of properties. Usually, indexes assess the performance of securities in a basket designed to replicate a certain market area. These may be broad-based, such as the Standard & Poor’s 500 (S&P 500) or Dow Jones Industrial Average (DJIA), or more specialized, such as indexes that track a specific sector or segment, to capture the entire market. Indexes are often produced for the purpose of calculating other financial or economic data, such as interest rates, inflation or output of production.

Indices also act as metrics by which to measure the efficiency of the returns of a portfolio. One common investing technique known as indexing, is to attempt to passively replicate such an index instead of attempting to outperform it.

An index is an indicator or measure of something and typically refers to a statistical measure of change in a securities market in finance. For financial markets, stock and bond market indices consist of a hypothetical portfolio of securities representing a specific market or a segment of that market. (You can not invest directly in an index.) For the American stock and bond markets, the S&P 500 and the US Aggregate Bond Index are common benchmarks, respectively. It refers to a benchmark interest rate created by a third party in reference to mortgages.

Each index linked to the stock and bond markets has its own methodology of calculation. The relative change of an index is in most cases, more important than the actual numerical value representing the index. For instance, if the stock exchange of the Financial Times (FTSE) 100 is at 6,670.40, that number tells investors that the index is almost seven times its base level of 1,000. However, investors must look at the amount the index has fallen, often expressed as a percentage, to assess how the index has changed from the previous day.