FTSE100

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What does the FTSE 100 mean?

The FTSE 100, or Financial Times Stock Exchange 100 Index, is a stock market index that represents the 100 largest publicly traded companies listed on the London Stock Exchange (LSE) by market capitalisation. It was established in 1984 and serves as a key indicator of the UK’s economic health and stock market performance. The index includes prominent companies from various sectors, such as finance, healthcare, consumer goods, and energy.

The FTSE 100 is often used by investors as a benchmark for the UK stock market and is tracked globally for its impact on international markets. It is calculated in real-time during trading hours and reflects the combined market value of its constituent companies. Changes in the index can indicate investor sentiment and economic trends, making it an essential tool for traders and analysts.

How is the FTSE 100 Calculated?

• The FTSE 100 is calculated using a free float market capitalisation method. Here’s a summary of how it work’s.

• Market Capitalisation: Each company in the FTSE 100 is assigned a market capitalisation, which is calculated by multiplying the company’s current share price by the number of outstanding shares.

• Free Float Adjustment: The market capitalisation is adjusted to reflect only the shares that are available for trading on the open market. This is known as the “free float.” For example, if a company has a total of 1 million shares, but 400,000 shares are held by insiders or in long-term holdings, only the 600,000 shares that are publicly traded are considered in the calculation.

• Index Calculation: The FTSE 100 index is calculated by taking the total free float market capitalisation of all 100 companies and dividing it by a divisor. This divisor is adjusted periodically to account for changes in the number of shares, corporate actions (like stock splits or mergers), and other factors that could affect the index’s level. The divisor ensures that the index remains consistent over time.

• Real-Time Calculation: The FTSE 100 is updated in real-time during trading hours, reflecting the latest stock prices of the constituent companies. As stock prices fluctuate, the index rises or falls accordingly.

• Rebalancing: The FTSE 100 is reviewed quarterly, and companies may be added or removed based on their market capitalisation. Companies must meet certain criteria to be included in the index, such as being listed on the London Stock Exchange and having a significant free float.

This method provides a clear and up-to-date reflection of the performance of the largest companies in the UK stock market.

The various types of FTSE Indices:

• FTSE 100: Represents the 100 largest companies listed on the London Stock Exchange (LSE) based on market capitalisation.

• FTSE 250: Comprises the companies ranked from 101st to 350th largest on the LSE by market capitalisation.

• FTSE 350: A composite index that combines the companies from both the FTSE 100 and FTSE 250.

How can you trade the FTSE 100?

You can trade the FTSE 100 using derivatives like CFDs (Contracts for Difference) and spread bets, allowing you to speculate on price movements—both upward and downward—without needing to own the underlying assets. Both trading products are leveraged, meaning you can gain full exposure to the market with a relatively small deposit, known as margin. However, it’s important to note that leveraging can amplify both your profits and losses, as these are calculated based on the total size of the position rather than just the margin amount. Additionally, spread betting offers the advantage of being tax-free, while losses incurred from CFDs can be offset against profits for tax purposes.

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