Utilize your financial knowledge, give your answer or opinion to the input question or subject . Answer format is not limited.

Why are index funds called index funds?
Because they track an index. Edited: The definition of the word in this case meaning "something used or serving to point out; a sign, token, or indication" from Meaning  #3 I presume therefore you are asking what an index is? There are many variations of what makes up an Index but in short it is a representation of some part of a market. An extremely simplistic calculation would be to take a basket of stocks, and sum their prices.  If one stock moves up a dollar, and one moves down a dollar, the index has effectively not changed, as it is presumed that the loss in one is offset by the gain in the other.