With so many abbreviations running around the finance world, it’s only natural to be a bit confused.

These terms are often used in the news to give you a sense about the state of the economy. If the DOW is up, it’s a good thing and if it’s down, it’s not so good. But what’s the difference between these terms?

You can basically break them down into two categories: stock exchanges and stock indices. Stock exchanges are where different stocks are bought and sold – similar to a grocery store for household goods. Stock indices, on the other hand, measure a specific segment of the stock market by tracking the stocks of a particular group of companies – you could create indices that track car, agricultural, or computer companies.

NASDAQ is a stock exchange where over 5,000 different stocks are traded, while the DOW and the S&P 500 are stock indices. The DOW focuses on 30 of the largest American companies and the S&P focuses on 500 of the strongest American companies.

By looking at the performance (or daily change in value) of various stock exchanges and stock indices, investors are able to measure the strength of different sectors of the American economy.