Behind Wall Street's subprime fear index

The formerly obscure ABX index has become a closely watched gauge of just how bad the market for subprime securities is getting.

How the ABX works
How the ABX works
The ABX tracks the performance of a basket of credit default swaps based on U.S. subprime home loans. Credit default swaps, which are like insurance contracts, allow buyers and sellers to trade risk.

In the case of the ABX, these financial instruments allow traders and investors to take positions on subprime securities without actually holding them.

The index is by no means perfect - traders use credit default swaps as a betting tool, which can skew prices - and it doesn't reflect the true value of the underlying securities. But it does offer a gauge of the demand for them. A decline in the ABX suggests that the securities have become more risky and that investors have lost confidence in them.

The ABX

Hedging a bet

What's in a name

More drama

On the horizon

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.