What is the FTSE 100 Index? A Beginner’s Guide
Introduction:
The FTSE 100 Index is one of the most recognized indicators of the UK stock market. Whether you’re new to investing or just curious about market trends, understanding what the FTSE 100 is and how it works is essential. This guide explains the basics in simple terms to help you get started.
What Is the FTSE 100 Index?
The FTSE 100, often pronounced as “Footsie 100,” is a stock market index that includes the 100 largest companies listed on the London Stock Exchange (LSE) based on market capitalization.
It was introduced on January 3, 1984, with a starting value of 1,000. Today, it serves as the primary benchmark for the performance of large-cap UK companies.
Key Features of the FTSE 100
- Number of companies: 100
- Selection criteria: Largest market-cap companies on the LSE
- Review frequency: Quarterly (March, June, September, December)
- Sectors included: Finance, energy, healthcare, consumer goods, and more
- Global exposure: Many companies operate internationally (e.g., Shell, HSBC)
How Is It Calculated?
The FTSE 100 is a market capitalization-weighted index, meaning:
- Larger companies have more influence on the index’s value.
- Only the free-float market cap is considered (shares available for public trading).
The index level is updated throughout the trading day as stock prices change.
What Does the FTSE 100 Tell Us?
- It reflects the overall health of large UK companies.
- It often moves in response to:
- Domestic economic data
- Global market trends
- Currency fluctuations (especially GBP strength/weakness)
- It’s widely used by:
- Investors to assess market performance
- Fund managers to benchmark portfolios
- News media to summarize daily market activity
FTSE 100 vs the UK Economy
It’s important to note that while the FTSE 100 is made up of UK-listed companies, many generate a large portion of their revenue overseas. So, the index isn’t always a perfect mirror of the UK’s domestic economy—but it is a powerful indicator of global corporate performance from the UK.
Conclusion
The FTSE 100 Index plays a central role in tracking and understanding the performance of major UK-listed companies. Whether you’re looking to invest in index funds or just want to follow market news more confidently, grasping the basics of the FTSE 100 is a smart first step.
FAQs
1. What does FTSE stand for?
FTSE stands for Financial Times Stock Exchange. It’s a joint venture between the Financial Times and the London Stock Exchange.
2. How are companies selected for the FTSE 100?
The 100 largest companies on the London Stock Exchange by market capitalization are included. Reviews occur every quarter.
3. What kind of companies are in the FTSE 100?
Companies span sectors like oil, banking, pharmaceuticals, consumer goods, and telecoms.
4. Can I buy the FTSE 100 index?
You can’t buy the index directly, but you can invest in FTSE 100 ETFs or index funds that track it.
5. Is the FTSE 100 only relevant to UK investors?
No. It’s followed by global investors, as many FTSE 100 companies operate internationally.
