Stock indices are priced in a range of ways, based on the value of their constituents. A price-weighted index, for example, gives greater emphasis to the higher-priced stocks among its constituents. So the higher a constituent company’s share price, the more influence that company has on the index’s movement.
By contrast, a capitalisation-weighted index gives emphasis to the companies among its constituents with the highest market capitalisation – or rather, the market value of their outstanding shares.
At IG Bank, we base our index market prices on futures contracts in the underlying market.