A stock index is calculated on the basis of prices of a certain group of securities – an index basket. It may include all securities traded on the stock exchange, as well as securities selected according to a certain characteristic.

The most famous indices are
Dow Jones Ind. Avg. – blue chips of the U.S. exchanges. Includes stocks of all industries except transportation and utilities.
S&P 500 – 500 largest companies of NYSE and NASDAQ, covering 75% of the entire U.S. stock market by capitalization.
NASDAQ – all companies traded on NASDAQ.
Euro Stoxx 50 – European blue chips of 12 Eurozone countries.
MICEX Index – blue chips of MICEX. Calculation in rubles.
RTSI – the same shares as in the MICEX index, but the index is calculated in dollars.
Nikkei 225 – the largest 225 companies of the Tokyo Stock Exchange.
The change of the index in time is important: it allows to judge the general direction of price movement in the index basket, whether the market is growing or falling. The price behavior of an individual stock may not be related to the index.

If we look at index charts since the founding of the stock exchange or any other long period, we can notice two features:

when the investment horizon is short, the index exhibits high volatility;
over a long period of time, the market shows growth.
These features make the index a tool for long-term investment – realization of the “buy and hold” strategy.
As a benchmark, i.e. a standard for comparison, the index is used to compare the behavior of an investment portfolio with the market, because the index is the same portfolio assembled from certain securities and does not require management.
Index Investment Instruments
Index mutual funds include cash and securities whose quotes are included in the calculation of the stock index to which they are linked.
Index futures and options are derivative financial instruments created on the basis of stock indices. The value of the index is interpreted as the price of this instrument. The purposes of using these instruments are:
investment;
speculative;
hedging (insurance) of risks.
Investments in index instruments are high-risk, so we recommend using them in the investment portfolio after consultation with a financial advisor