An index is a collection of individual assets. It constantly measures their prices and offers an average price point, making it easy for interested traders to check the general price movement of the assets. In the stock market, for example, indices combine the shares of individual companies like Apple, Google, Microsoft, and many more.

The most popular indices on the market are The S&P 500, Dow Jones, NASDAQ, etc. These stock indices are also known as the “benchmark indices” because of their importance. Since they combine the shares of the most influential companies, the politicians and economists often use them to check the healthiness of the whole economy of a country.

Therefore, these and other indices can be used to get an idea about the condition of the financial markets and predict at some level the price directions of certain assets. But this is not the only use of indices, traders also use them for the actual trading.