You're probably aware of the term 'indexing'. It means that instead of buying individual shares, with the risk that that sometimes entails, you buy an entire 'index' of shares and spread the risk across all the companies making up the index.
Indexing is big in the USA. Many investors invest in funds which track certain indices, believing the return to be higher, the costs lower, and the risk less pronounced than actively-managed traded funds.
In the UK, the important indices all relate to companies trading on the London Stock Exchange - FTSE 100, FTSE 250, and FTSE All-Share, for instance. In America, there are many more exchanges and many more indices based on the companies listed on them. Some indices are confined to particular exchanges:
New York Stock Exchange Indices
The NYSE is the oldest and largest stock exchange in the USA, with more than 3,000 companies listed. Its Composite Index is a market value-weighted index which covers all the companies listed on the exchange.
AMEX Indices
There are two main indices for stocks listed on the American Stock Exchange: the Composite Index (XAX) and the Major Market Index (XMI). The latter is a price-weighted average of 20 blue chip industrial stocks.
NASDAQ indices
NASDAQ also has two main indices: the Composite Index, which covers all the 5,000 American and foreign stocks listed on the exchange. And the 100 Index, which covers the largest and most actively-traded non-financial stocks listed on the exchange.
and some cover companies listed on more than one exchange:
Dow Jones Industrial Average (DIA)
The DIA is made up of 30 actively-traded large-cap stocks, including household names like Coca-Cola, Boeing, IBM, McDonald's and so on. Although the number of stocks in it is low, the companies are so large that it represents about 20% of the total market capitalisation of all US stocks.
S&P 500
The Standard & Poors 500 Composite Index shows the change in the aggregate market value of 500 stocks listed on the NYSE, Amex and NASDAQ exchanges. It is dominated by industrial stocks, but also includes utilities, financials, energy, technology and transport companies.
S&P MidCap 400
The S&P MidCap was created as an index for companies that had progressed beyond the risky small-cap stage but which had not yet graduated to the S&P500. Size is, of course, relative: the average market capitalisation of companies in the S&P400 is about $3 billion!
Wilshire 5000 Equity Index
This index, created by Wilshire Associates of California, is the widest of them all. It covers over 7,000 US companies listed on the NYSE, Amex and NASDAQ exchanges.
The strategies and methods of index investing could cover an entire book.
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