I just noticed that many people are asking what an index really is, and in fact, it’s more important for investing than you might think. Whether you’re watching economic news in the morning or in the evening, you’ll always come across names like SET50, NASDAQ 100, Dow Jones, or Nikkei 225.

Simply put, an index is a number that lets you understand how much the stock market is going up or down. For example, SET High Dividend 30 reflects the prices of 30 companies that have high market value, good liquidity, and pay large dividends. A good index must have important qualities: it should be genuinely investable and transparent, not just a number floating in thin air.

As for how an index is calculated, there are different methods. The first is the capitalization-weighted method, where larger companies have more influence on the index. This is used for the S&P 500 in the United States, FTSE 100 in the United Kingdom, and SET in Thailand. For example, if Company A has a price of 4 baht with 100 shares, and Company B has a price of 5 baht with 200 shares, then the market value of A is 400, and the market value of B is 1,000. Therefore, B makes up 71.43% of the index, which is more than A’s 28.57%.

The second method is the price-weighted method, where stocks with higher prices carry more weight. This is used for Dow Jones and Nikkei 225. For example, if Stock A is 5 baht, Stock B is 10 baht, and Stock C is 15 baht, then C will have the largest share at 50%. The third method is equal-weighted, where every stock has the same proportion, which spreads risk better, but it may change more quickly.

Let’s talk about popular indices. In Thailand, there are SET50 and SET100. These indices show the price level of the top 50 and top 100 stocks by market value, respectively. The list of companies changes every 6 months, in June and December. SET50 began on August 16, 2538, with an initial value of 1,000 points.

Outside the country, there is the S&P 500, which measures the performance of 500 U.S. companies. Companies like Apple, Microsoft, Amazon, and Berkshire Hathaway are included. It is heavily traded and serves as an indicator of the U.S. stock market and the overall economy. Dow Jones measures the performance of 30 large companies, using the price-weighted approach, and includes Microsoft, Coca Cola, Apple, and McDonald’s. It is compiled by S&P Dow Jones Indices.

Then there is NASDAQ 100, an index of 100 large companies that are not financial institutions, listed on NASDAQ. It starts from January 31, 2528, and it is home to Apple, Amazon, Microsoft, and Alphabet—the four companies whose revenues reach the trillion-dollar level.

In Japan, there is Nikkei 225, which measures the performance of 225 leading Japanese companies. It is listed on the Tokyo Stock Exchange and began on September 7, 2493. It is an important indicator of the Japanese stock market and shows the picture of Japan’s economy since after World War II.

In the United Kingdom, there is the FTSE 100, which consists of the 100 companies with the highest market value on the London Stock Exchange. The stocks of these companies account for 81% of the total market value. Examples include Tesco, Unilever, and Barclays, compiled by FTSE Group, which is a subsidiary of the London Stock Exchange.

Germany has the DAX 30, weighted by the market value of 30 blue-chip companies listed on the Frankfurt Stock Exchange. It is comparable to the Dow Jones in the United States, but because it has fewer companies, this index does not fully reflect the German economy. It was first published on July 1, 2538. Examples include BMW, Adidas, Bayer, and Deutsche Bank.

In fact, an index is a tool that helps us understand the market better. Some people invest through index funds to diversify risk, while others trade indices through CFDs to achieve higher returns. No matter which approach you take, you need to understand that each index has its own characteristics and risks. Once you look into this, you’ll see why people are so interested in these indices.