If you’ve traded stocks, you’re probably familiar with all the indices available such as the Dow Jones Industrial Average (DJIA), NASDAQ Composite Index, Russell 2000, S&P 500, Wilshire 5000, and the Nimbus 2001.

Oh, wait, that last one is Harry Potter’s broomstick.

Well if U.S. stocks have an index, the U.S. dollar can’t be outdone.For currency traders, we have the U.S. Dollar Index (USDX).

And to be technically correct, the ICE U.S. Dollar Index. 

The U.S. Dollar Index consists of a geometric weighted average of a basket of foreign currencies against the dollar.

Say what!?!

Okay before you fall asleep after that super geeky definition, let’s break it down.

It’s very similar to how the stock indices work because they provide a general indication of the value of a basket of securities.

Of course, the “securities” we’re talking about here are other major world currencies.