What is an index?

Exactly what is an index, and why are they important? In the very simplest terms, an index is a selection of assets in a hypothetical ‘basket’ which investors can purchase as a single product, and which in turn tracks the performance of all the individual assets which make up the index.

 

For example, in the traditional stock market, investors can buy indices such as the S&P 500, which is made up of the top 500 US stocks, and instead of buying shares in all of these top performing companies, an investor simply buys stock in the index, which gives them exposure to all 500 companies, and whose combined value determines the price.

 

As the prices of each asset rise and fall, it changes the price of the index itself, and as the value of different stocks change, some companies drop out of the index to be replaced by others which have surpassed them. The individual investors don’t need to do anything, as the assets which make up the index are managed automatically.

 

Types of indices

What is an index comprised of, and what makes each of them different? Well, indices generally represent a particular ‘market segment’, which could for example be leading blue chip companies, or the top crypto assets in a particular sector.  Quite often, indices are weighted depending on certain factors, such as market-cap or price. These different indices essentially allow investors to take positions in markets which they like, and in this case they are betting on the overall long-term growth of their chosen market sector.

 

What are indices useful for?

Investing using indices is called passive investing as it essentially means that investors can simply buy a position in a single index without having to be sat at their screens pouring over charts continuously to find trading opportunities, something which many investors simply don’t have the time, nor the inclination, to do.

 

This type of passive investing strategy outperforms those actively managed funds, and one of the reasons for this is there are little to no frictional costs (for example, trading fees, management costs and even capital gains taxes).

 

Of course, there are no guaranteed ways of making returns, but indices provide investors with a good way of optimising returns at the same time as balancing risk.

 

These indices are very popular, especially with retail investors, but large Pension Funds and National Social Security funds also invest in passive investment strategies, such as indices. Furthermore, many financial institutions use indices as a way of ‘benchmarking’ against their own investing activities.

 

Phuture crypto index products

There is an old saying…’as above, so below’, and this is very much the case in the world of digital assets. With this market seeing eye watering growth over the last few years, it’s likely that investors who are interested in this industry will flock to crypto indices as the digital currency sector continues to explode.

If the traditional stock market has shown anything, it’s that passive investment vehicles, such as indices, are extremely popular amongst both retail and institutional investors, but to date the availability of indices in the world of digital assets (cryptocurrencies) has been somewhat limited.


At Phuture, our mission is to make passive investing in digital assets accessible to everyone regardless of their technical knowledge or experience, providing investors with the ability to make passive investments in digital assets through Phuture’s crypto index products. 


More importantly, the ability to invest isn’t limited to the super-wealthy or only the seasoned investors. Phuture is perfect for new investors too, regardless of the amount of capital you may have to invest, and our platform is designed to be super user-friendly and simple to use.

It’s very straightforward to invest in crypto indices on the Phuture platform, and taking a position in one of the wide range of crypto indices literally takes just a few clicks. 

 

And if the indices on offer aren’t quite what you are looking for, well you can also create your own, which you, and other users, can choose to invest in.

 

Ready to get started with simplified crypto investing? Start here.