Although traders and investors spend most of their time looking at the price of shares they either hold or are thinking of buying, you will often hear them ask, "how's the market's doing?" Similarly, you will have noticed that most news bulletins end with something along the lines of: "In the markets today, the 'Dow Jones', was up or down such and such number of points".

What people are usually talking about when they talk about "the market", is, in fact, a market index.

Each day on Europe's stock markets alone, billions of dollars worth of equities are traded. On any particular day, some share prices trade higher, some lower, and others remain unchanged.

A market index shows the movement of a particular market as a whole: revealing if the total value - the market capitalisation - of all companies listed has increased or decreased. The FTSE 100 share index, for example, is made up of the 100 largest UK registered companies in terms of their market capitalisation.

What is more, indices are not just calculated on an entire market. They are also available on particular sectors of a market: the largest capitalised companies, technology stocks, smaller companies, and so on.

How then are indices useful?