Stock Index, Options and Futures

Index is a statistical measure of change in an economy or a securities market. In the case of financial markets, an index is essentially an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage changes is more important that the actually numeric value.

Stock index is defined as the index of the market prices of a particular group of stocks.
Example: NASDAQ composite index, NSE index etc.

Mr. Charles Dow created the first, and consequently, most widely known index back in May of 1896. At that time, the Dow index contained 12 of the largest public companies in the United States.

Most indexes weight companies based on market capitalization. If a company's market cap is $1,000,000 and the value of all stocks in the index is $100,000,000, then the company would be worth 1% of the index. These types of systems are made possible by computers--most are calculated by the minute and so are very accurate reflections of the market.

Option
Option is the right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock , commodity , currency, index, or debt, at a specified price (the strike price) during a specified period of time.

Futures
Futures means a financial contract that obligates the buyer (seller) to purchase (sell and deliver) financial instruments or physical commodities at a future date, unless the holder's position is closed prior to expiration.

In other words, futures trading is a zero-sum game. Futures contracts are forward contracts, meaning they represent a pledge to make a certain transaction at a future date. The exchange of assets occurs on the date specified in the contract. Futures are distinguished from generic forward contracts in that they contain standardized terms, trade on a formal exchange, are regulated by overseeing agencies, and are guaranteed by clearinghouses. Also, in order to insure that payment will occur, futures have a margin requirement that must be settled daily.