What are stock markets?
You may hear on the news that ‘stock markets were up today’, or that ‘the FTSE 100 was down 20 points’. But what actually is a stock market?
A stock exchange is where investors can buy and sell shares - this is also known as ‘trading’. Nowadays, most trading takes place online. Usually, when people talk about what the stock market is doing, they’re actually talking about how a stock index is performing.
What’s a stock index?
The FTSE 100 is an example of a stock index. FTSE stands for Financial Times Stock Exchange. The FTSE 100 is an index of the 100 largest companies listed on the London Stock Exchange. If a company is listed on the London Stock Exchange, investors can buy or sell shares in it.
A stock index provides a useful way of monitoring the overall changes in value (known as ‘performance’) of the whole stock market, or of segments of the stock market. In the UK, we can look at the FTSE 100 index and see that the UK’s biggest listed companies are collectively going up or down in value. Changes in value of a stock index can be driven by economic conditions as well as a number of other factors.
Calculation methods may differ from one stock index to another, but most are based on the total market value of the companies in the index – this value changes as the market prices of the underlying company shares change. Some shares may go up in price and others may go down; it is the overall total change in value that is captured by the index.
How many stock indexes are there?
Usually, there will be at least one stock index for each country with an active stock market. As well as the FTSE 100 Index in the UK, there’s the CAC 40 in France, the Nikkei 225 in Japan, and the S&P 500 in the USA. The first part of the index name usually references the sponsor or the calculator of the index, while the second part references the number of companies included in the index.
Within the stock market of one country, there may be several different indices, each trying to capture the characteristics of different parts of the market. In the UK, the FTSE All-Share index includes all companies listed on the main market of the London Stock Exchange, the FTSE 100 includes the 100 largest companies by market capitalisation, and the FTSE 250 includes the 250 next largest companies below that.
Active versus Passive funds
Stock indices are often used by fund managers to measure their fund’s performance:
Active funds will aim to beat the performance of the stock index. Fund managers attempt to do this by using their experience and expertise to selectively invest in the companies they believe will perform better than others. It’s down to their skill whether they will beat the index or not.
‘Passive’ or ‘Tracker’ funds instead aim to track the performance of a stock index, either by directly investing in most or all of the companies in the index, or indirectly by investing in other types of financial contracts to mirror its performance.
Zurich offers access to both active and passive funds.
The performance of a stock index in general should not be confused with the performance of your own investment, which may invest in several countries covering more than one index, or in additional asset classes such as government bonds. This will mean the performance of your investments may be different to that of the stock index.
It’s also important to remember that if you’re a longer-term investor, the day-to-day movements of the stock market are part and parcel of investing. What matters more is how your investment grows over time.
- Learn more about investing with diversification here
This article was last updated in August 2025
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