Why use indices?
There are several ways to use indices when you invest:
- Because they define the various investment markets, they help you gain an insight into the performance of asset classes or segments within them.
- They also allow you to benchmark the performance of investment portfolios versus how well the market has performed as a whole.
- There are warrants, exchange traded funds, futures and options over certain indices. These instruments can be used to gain exposure to the performance of the index, provide leveraged exposure to movements in the index, or hedge portfolios against losses.
The methodology used to create an index is often published to give stakeholders an understanding of how decisions governing index calculation are made.
