Long before you even understood how the stock market works, you probably heard about the FTSE 100. You might have wondered why newsreaders seemed to be obsessed with it or what the big fuss was over “the closing figures of the day.”
Finally, we answer all the burning questions you probably had as a child. Or not – in which case, it’s about damn time you learned something useful.
What is it?
It’s the most well-known share index in the U.K. It’s often synonymous with “the market” – if you were to ask a trader in London how “the market” is doing, chances are they’d start gabbing about the performance of the FTSE 100.
What’s up with the name?
FTSE stands for Financial Times Stock Exchange. The name is a mash-up of its parents, the London Stock Exchange (LSE) and the Financial Times. And 100 refers simply to the fact that the index is made up of the hundred biggest companies listed on the LSE.
You might also hear some calling it the “Footsie” – don’t be alarmed and think the person is proposing a round of toe tango.
What is it good for?
The FTSE 100 provides a quick snapshot of U.K. stock market performance. If you track it over time, you can get a pretty good handle of changes in market sentiment. It’s not rocket science: If the index is up, it means there are more people buying than selling, and share prices have risen. But if people are dumping shares, then the index falls.
The jury’s still out on whether it also serves as a good dipstick for U.K. economic health since many of the companies listed on the FTSE 100 are international companies with far-flung operations.
How does it work?
It measures the daily stock performance of the LSE’s top 100 companies. The index is calculated in real time and updated continuously when the market is open.
But not all shares are created equal. Share prices are weighted by market capitalization (“market cap” to the insiders), meaning larger companies will make a bigger impact on the index than smaller ones. Currently, Shell, Unilever and HSBC are some of the FTSE 100’s most influential movers and shakers.
Can companies listed in the FTSE 100 change over time?
Hell yes. Much like how football clubs have to qualify for the Premier League, companies can indeed get promoted or relegated from the FTSE 100.
This is reviewed by a bunch of independent
snobs experts who get together once a quarter and discuss who should be allowed into this exclusive league. Eligibility is assessed based on a company’s market cap, which is calculated by multiplying the number of shares the firm has issued by the price per share.
How can I trade the FTSE 100?
With BUX X, you can! Besides the FTSE 100, you can also trade on the world’s major stock indices from the S&P 500 in the U.S. to Germany’s DAX.
All views, opinions or analysis expressed in articles are that of the author and do not represent the views of BUX. Neither BUX nor the author provide financial advice and these articles should not be construed as such.