What is an index?

Restriction Index is measuring some type of market that is not chamfered by the size of certain components on this market. Like other indices, it consists of the diameter of the individual components in it, such as stocks or other securities. The difference with the limited index is that even if it could be weighed to reflect larger players on the market, the larger players cannot prefer much. It does this by limiting the weight that any individual component has to calculate the average of all components together. Indices

analysts and investors are used in different ways. The idea of ​​a market index is to take a lot of similar securities such as stocks, and the average performance of these securities over time. As the average rises and decreases, analysts can get a good idea of ​​how a certain market industry performs. Investors are interested if they choose securities according to the industry or invest funds that are set to mirroring a particular index. The index with restriction preventsWeighing one security too strongly in the total average.

In order to understand how the limitation index works, it is important to first understand the concept of a weighted index. The weighted index is thus named because it distorts the diameter more towards securities that have a greater impact on the overall market. For example, if certain shares of market capitalization, which make up 50 percent of all market capitalization of shares included in the index, the index would reflect this dominance when the average was calculated.

The difference with the limitation index is that one security can be limited to the amount of impact that may have to measure the entire index. For example, a share index may have a limit of 20 percent. This means that even stocks with higher market capitalization than that could not exceed 20 percent of the weighted average.

Using an index with restriction there is no single supply or other security that could make the index too muchconsider. This is done by obtaining a more balanced overview of the whole market from the index. Just because one security takes up a large part of the market and makes sure it does not necessarily mean that the rest of the market is also done in this way. The index limitation gives a picture more reflecting the actual state of a market sector.