Oftentimes, we get confused about the difference between the Stock Market and the Index/ Indices Market.
Well, simply put, investing in the stock market means you’re investing a certain percentage of a particular company’s assets. You are becoming a partial owner of the company. And if the company does well in the market, you get a higher profit, depending on your invested money.
Giving you an example, let’s say XYZ Firm announces that they are putting 50% of the company on the market in the form of 100 stock accounts and you are buying one. That means you now own 0.5% of the XYZ Firm. So, your profit opportunity and loss amount will depend on how solely the XYZ Firm does in the market.
On the other hand, investing in indices means you are investing in a sector of companies. Even then, you are a partial owner of companies, not just one, but all the companies that are in that sector. For example, if you are investing in GER40, which means all the 40 companies that are listed in GER40, you are a part of all the company’s profit or loss results.
Stock is a company’s asset, and indices are many companies’ assets under one investment firm, and you are a part of that middle firm.
There are many differences between Stock Trading and Indices Trading.
