Stock indexes are directly linked to the Polish capital market. The undisputed most important stock index on the Warsaw Stock Exchange is the WIG20, but the global market has much more to offer. What are the types and functions of stock indexes?

Several hundred companies are listed on the stock exchange. Without stock indexes, it would simply be impossible to monitor the quotes of all securities. Stock indexes published by exchanges and financial institutions reflect the current market situation.

Stock indexes - what is it?
nd dowe indexes are indicators that inform about the market situation. They show the price movement of all securities within a given group or type of securities. The stock exchange index also allows you to infer what the stock market is doing at a certain time, as it reflects the behavior of the stocks listed on it.

By observing changes in the value of the stock index, you can assess the level of profitability in the market, as well as indicate the direction of price movement. Therefore, there is no need to conduct a price analysis of the shares of each of the companies separately. Thus, the stock index allows you to adjust subsequent movements in accordance with the predicted market changes.

Functions of stock indexes
The stock index performs many different functions. The most important ones are:

comprehensive information about the current market situation or its individual segments,
a benchmark for evaluating investment effectiveness,
a basic tool for derivatives (options, futures and forwards),
a substitute for a market portfolio, which is important in portfolio theory and capital market models,
a specialized tool that helps investors build their own stock market indicators.
Characteristics of stock indexes
Initially, the indexes were built in order to illustrate short-term changes in stock prices of listed companies. Therefore, the intention was not to use them for a long period of time.

Now the stock index is a kind of statistical indicator that shows how the prices of companies change over time. This largely affects the behavior of stock market investors who analyze exchange rates. It also helps technical analysts make decisions about the companies in their portfolio, as well as anticipate future stock market trends and minimize risks.

To assess the level of profitability in the market and determine the direction of price movement, it is not necessary to analyze the share prices of individual companies, it is enough to observe the change in the index value.

Stock index weights - what are they counting on?
Three weighing methods are used to build the weights in the index:

the market value of a company (the highest weight for the largest companies) is the ratio of the market value of companies in the analyzed period and in the base period,
weighting with the company's share price (the highest weight for the most expensive company) - the higher the share price, the higher the weight,
assuming the same weights for all companies, regardless of their size and price - The averaging is performed using the average statistical value.
The averaging method uses arithmetic and geometric averages. The geometric average is always lower when prices change, grows more slowly and falls faster than the arithmetic average. If the index consists of the same companies but uses different types of averaging, they may show different values. Therefore, choosing the appropriate type of averaging is extremely important for the index value. If you lean more towards casino games, Melbet has still got you covered. Sign up with the promo code for melbet to unlock a 450% casino bonus of up to ৳4,46,000, plus 220 free spins — available across the first 3 deposits on the platform. To qualify, you'll need to choose the Melbet casino bonus at the time of registration and make a minimum deposit of ৳1,260.