When discussing the financial markets in the UK, the FTSE 100, sometimes known as “Footsie,” has emerged as the most common point of reference. The Financial Times Stock Exchange, or simply the FTSE 100, is another popular stock index among professional investors.
In this article, we will look at the FTSE 100, its history, and how it is used by investors. So, without further ado, keep reading to find out more about the index.
What Is the Financial Times Stock Exchange (FTSE 100)?
The leading stock market index in the United Kingdom is denoted by the ticker symbol FTSE100. It monitors the total market capitalization of the 100 most valuable firms listed on the London Stock Exchange. The index includes 100 of the largest corporations, such as BP, HSBC, and Tesco, among others.
Investors will trade based on the FTSE100, and they will also utilize it as a way to obtain broad exposure to the largest UK-listed companies. Therefore, when you buy or sell the FTSE100, you are not trading individual shares but rather a collection of the largest publicly traded companies in the UK.
In addition to this, the daily volatility of the index, much like the daily volatility of many other stock market indices, is something that traders find appealing. These traders want to buy and sell shares over a much shorter period of time than the investors who have a longer-term perspective.
The FTSE 100 is an extremely popular index across Europe. The index started off at a level of 1,000 when it was first introduced in 1984.
Many market investors and traders refer to the FTSE 100 as a measure of the success of the larger U.K. financial markets, in a manner that is comparable to the manner in which many people in the United States refer to the Dow Jones or the S&P 500 indexes.
How Does the FTSE 100 Work?
The overall market capitalization of the firms that make up the FTSE 100 is taken into account along with the value of the index when determining the level of the FTSE 100.
During the course of a day, the overall market capitalization moves in tandem with the particular stock values of the firms that are listed, which causes the value of the index to move as well.
When determining whether the FTSE 100 is rising or falling, the market’s closing from the previous day is used as a comparison. It is estimated in a constant fashion throughout each and every trading day, beginning at 8:00 a.m. when the market opens and continuing until 4:30 p.m.
When the FTSE 100 index falls, it indicates that the value of the UK’s major publicly traded corporations has gone down. Whenever the FTSE reaches a high, it indicates that the aggregate value of all of the firms that are tracked has grown.
Every quarter, the FTSE 100 index firms are readjusted. Any changes to index components and weighting originate from the firms’ closing prices on the evening before the assessment.
(The FTSE 100 graph over the years. Source: WikimediaCommons)
It is common practice to see the performance of the FTSE 100 as a leading indicator of success for firms based in the United Kingdom and the economy as a whole. As a result of this, it often attracts investors who are seeking exposure to major corporations based in the U.K.
Despite the fact that some of its listings are for businesses headquartered in countries other than the United Kingdom, the vast majority of its constituents are British, and it is thus subject to current events in the United Kingdom.
FTSE100 Requirements
For a firm to even be regarded for inclusion in the index, it must first satisfy a set of requirements. For instance, it must be a public limited company that is listed on the London Stock Exchange and it must meet the basic standards for liquidity that are set by the index.
The most essential requirement, on the other hand, is that it must be ranked in the top one hundred businesses on the London Stock Exchange in relation to market capitalization. A firm’s market capitalization may be determined by multiplying the price of its shares by the total number of shares it currently has outstanding.
Takeaways
- When discussing the financial markets in the UK, the FTSE 100, sometimes known as “Footsie,” has emerged as the most common point of reference.
- Investors will trade based on the FTSE100, and they will also utilize it as a way to obtain broad exposure to the largest UK-listed companies.
- When you buy or sell the FTSE100, you are not trading individual shares but rather a collection of the largest publicly traded companies in the UK.
- The overall market capitalization of the firms that make up the FTSE 100 is taken into account along with the value of the index when calculating the level of the FTSE100.
- When determining whether the FTSE 100 is rising or falling, the market’s closing from the previous day is used as a comparison.
- It’s usual to use the FTSE 100 as a leading indicator of success for UK businesses and the economy as a whole.
