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What Is a Broad Market?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 20 September 2016
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A broad market is a stock index that covers large numbers of securities across multiple industries to provide a general overview of market conditions. It can provide useful information to investors who want to follow market movements. Many organizations have broad market indexes of their own and list them publicly for the benefit of investors, regulators, and interested members of the public. They can be found in trade publications and major newspapers.

The broad market index does not provide an overview of a specific industry. Within the market overall, individual industries may perform at higher or lower rates than the stock index might suggest. An uptick in one industry, for example, may not influence the broad market as a whole because it is too small. Investors who want to track particular industries within the market will need indexes geared toward those industries to get more accurate and reliable information.

It does offer an overview for investors who want to be able to glance at a single index and draw conclusions about market movements. The broad market shows upward and downward trends in the market as a whole. Deeper analysis may offer specific information about the performance of individual securities in the index, along with other data investors may find useful for making decisions about how, when, and where they would prefer to invest.

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When an organization compiles a broad market, it can use a variety of criteria to decide which securities to include on the listing. It may also periodically reevaluate, de-listing some securities and adding others. The goal is to create a balanced overview without notable skews with a mixed selection of securities from all sectors. The index may also take on an international scope with securities from companies based in other nations, as well as domestic businesses.

This type of securities index can include 5,000 listings or more, depending on the company that compiles it. The documentation for the broad market will provide information about which companies are listed and how the company decides what to list. It can be helpful to review this before making decisions on the basis of information provided in the stock index, as there could be important clues in the compiler's criteria for listing. Trade publications can also provide reviews and discussions of various securities indices for the benefit of investors who want to know which tend to be the most reliable for various applications.

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