A stock market index is a hypothetical portfolio of investment holdings that represents a segment of the financial market. It measures the performance of a stock market or a subset of it, and helps investors compare current stock price levels with past prices to calculate market trends. A stock market index is a statistically representative sampling of any set of observable securities in a given market segment.

Stock market indices may be classified and segmented by the set of underlying stocks included in the index, sometimes referred to as the "coverage". The underlying stocks are typically grouped together based on their underlying economics or underlying investor demand that the index is seeking to represent or track. For example, a world or global stock market index—such as the MSCI World or the S&P Global 100—includes stocks from all over the world, and satisfies investor demand for an index for broad global stocks.

The most frequently quoted market indices are national indices composed of the stocks of large companies listed on a nations largest stock exchanges, such as the S&P 500 Index in the United States, the Nikkei 225 in Japan, the DAX in Germany, the NIFTY 50 in India, and the FTSE 100 in the United Kingdom.

Investors use indexes as a basis for portfolio or passive index investing. Understanding a market index is important because each index measures a specific market, market segment, or investment strategy in which investors, whether individual or institutional, might choose to invest.

In summary, a stock market index is a tool that measures the performance of a segment of the financial market, and is used by investors to compare current stock price levels with past prices to calculate market trends. It is a statistically representative sampling of any set of observable securities in a given market segment, and is classified and segmented by the set of underlying stocks included in the index. Investors use indexes as a basis for portfolio or passive index investing, and understanding a market index is important because each index measures a specific market, market segment, or investment strategy in which investors might choose to invest.