THE INDEX
The purpose of an average is to transform individuality into classification. When done properly, there is useful information to be gained. Indices have gained popularity in the futures markets recently; the stock market indices are now second to the financial markets in trading volume. These contracts allow both individual and institutional participants to invest in the overall market movement rather than take the higher risk of selecting individual securities. Furthermore, investors can hedge their current market position by taking a short position in the futures market against a long position in the stock market.
A less general index, the Dow Jones Industrials, or a grain or livestock index can help the trader take advantage of a more specific price without having to decide which products are more likely to do best. An index simplifies the decision-making process for trading. if an index does not exist, it can be constructed to satisfy most purposes.