An index is a tool we can use to measure movement over time. In the stock market, we use indices to track the performance of a selection of listed companies. This could include all the companies listed on the market, or all the companies in a certain sector. In inflation, we use an index to track the price of certain goods over time.
An index is not a financial instrument in itself. It’s simply a way to measure what things are doing over time.
If you had to measure and record your weight every week for a year, you would have an index of your weight. If you did that for your whole family and calculated an average, you would have an index of the average weight of your family.