Footsie FTSE: What it Means and How it Works

The companies that make up the Footsie represent a wide range of industries, including banking, energy, pharmaceuticals, and more. The FTSE 100 employs a market capitalization-weighted methodology, which means that companies with larger market capitalizations have a greater impact on the index’s movements as a percentage. This approach ensures that the index reflects the relative size and importance of the constituent companies. As a result, the share prices and market values of larger companies in the FTSE 100 can have a more significant effect on the index compared to smaller companies. The Financial Times Stock Exchange, or Footsie, is a crucial part of the trading world.

Additionally, investors can buy shares in individual FTSE 100 companies via share dealing platforms. For more details, check the London Stock Exchange website or explore top UK-based investment platforms. Companies ranked below 110 in market capitalisation may be removed, while those ranked at 90 or higher in the FTSE 250 (the next 250 largest companies) may be promoted.

What is an index fund?

Understanding the history, workings, and components of the FTSE 100 is crucial for investors looking to make informed decisions. It’s important for investors to consider their investment goals, risk tolerance, time horizon and other preferences when deciding between index funds and individual stocks. Index funds offer broad market exposure and convenience, while individual stocks provide the opportunity for targeted investments and potential higher returns. Stocks with higher market caps have more weight in the FTSE 100 and therefore have a bigger effect on the index’s price movements. The market capitalisation of each company is reviewed once a quarter, and the index is adjusted if necessary.

You’ll have a stake in the UK’s top companies for a fraction of the cost of buying these companies’ shares individually. Not only can this approach be more affordable, but by holding a diverse range of assets, it may also help reduce the impact of stock market volatility compared to investing in individual stocks. The creation of the FTSE 100 was a collaborative effort between the Financial Times (FT) and the London Stock Exchange (SE), hence the name. The selection process involved identifying the top 100 companies by market capitalization and ensuring that the index offered a diverse representation of various sectors and industries. (Further information on company eligibility can be found later in this article).

We do not provide investment advice, so please be sure that investing is right for you by making your own decisions or seeking advice. The FTSE 100 index, made up of the largest 100 companies trading on the LSE by market cap, is an important indicator of the broader financial market. It is closely followed by investors and is similar in function to the DJIA and S&P 500, and contains some of the largest companies in the world, such as BP and Shell. It is one of the most widely followed indices in the world and is used as a benchmark by investors and fund managers to gauge the performance of the UK stock market. Introduced in 1984, the Footsie has since become one of the most widely used stock indices and is seen as a reflection of the health of the UK economy. It is used by investors and traders as a benchmark for investment performance, a tool for asset allocation, and as an underlying for a wide range of derivative products.

If one company’s market capitalisation overtakes another, the composition of the index might change. That’s because the FTSE 100 is a capitalisation weighted index and only consists of shares of the 100 companies on the London Stock Exchange (LSE) with the largest market caps. The FTSE 100 is an index made up of shares from the 100 biggest companies by market capitalisation on the London Stock Exchange (LSE). The price of the index is determined by the price movement of these constituent stocks. The Footsie is made up of 100 of the largest companies listed on the London Stock Exchange. These companies are selected based on their market capitalization, which is the total market value of a company’s outstanding shares of stock.

How Many Companies Are in the FTSE 100?

You can buy FTSE 100 ETFs using our InvestDirect share dealing platform. Another way to buy into the FTSE 100 is to invest in an index tracker fund. Tracker funds aim to track the performance of a particular index, such as the FTSE 100. To invest in an index fund or ETF, open an investment account with a provider, deposit money into that account and then choose a fund to invest in. If you want to invest in the FTSE 100, you simply need to look for an index or ETF that tracks the FTSE 100, and specify how much of your deposited funds you want to invest.

ftse100index

Understanding these aspects empowers investors to make informed decisions and maximize investment returns. The index level is updated throughout the trading day as stock prices change. When you choose index futures, you agree to trade the index at a specific price on a specific date. Index futures have wider spreads, but open positions are not subject to overnight funding charges.

Investors have several options when it comes to buying FTSE 100 shares, whether they prefer index funds or individual stocks. A company need not be British to be in the FTSE but must be listed on the LSE. Because many of the listed companies are foreign-based or do most business overseas, the value of the pound is a factor as well.

What is a Stock Index? Understanding the FTSE 100 for Beginners

• To be included on the FTSE 100, a company must be listed on the LSE, it must be denominated in pounds, and it must meet minimum float and stock liquidity requirements.
• This makes the index an indicator not only of the UK economy but also of global economic conditions.
• Get the latest creative news from FooBar about art, design and business.
• The FTSE 100 evaluates all stocks listed on the London Stock Exchange by market capitalisation (sometimes called “market cap”).

Since these firms are publicly traded, their values shift based on share price fluctuations. The FTSE 100 index is a capitalization-weighted index, which means that companies with larger market capitalizations have a greater influence on the index’s movements. As a result, changes in the share prices of larger companies will have a bigger impact on the overall index value compared to smaller companies.

Understanding Indices in Financial Markets – Your Complete Guide 2025

• Another way to buy into the FTSE 100 is to invest in an index tracker fund.
• Understanding the FTSE 100 can be a great starting point for those new to investing, as it provides insight into the performance of major UK-listed companies.
• It is used by investors and traders as a benchmark for investment performance, a tool for asset allocation, and as an underlying for a wide range of derivative products.
• It is a barometer of the nation’s economic health and a key indicator for traders and investors worldwide.
• Understanding how the FTSE 100 price is calculated and having a historical perspective on its average values can provide valuable insights into the index’s performance over time.

The content of this article is provided for information purposes only and is not intended to be, nor does review swissquote broker it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms.

How Old is the FTSE 100?

71% of retail client accounts lose money when trading CFDs, with this investment provider. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how this product works, and whether you can afford to take the high risk of losing your money. FTSE 100 companies change when the stocks listed on the FTSE 100 are reviewed – this happens every quarter.

When you invest in the stock market, you may have to pay income tax and capital gains tax (CGT) on your profits. To protect your profits from the taxman, you can make the most of your annual ISA allowance, which currently stands at £20,000. We have taken reasonable steps to ensure that any information provided by The Motley Fool Ltd, is accurate at the time of publishing. No content should be relied upon as constituting personal advice or a personal recommendation, when making your decisions. If you require any personal advice or recommendations, please speak to an independent qualified financial adviser. It is important to note that the composition of the FTSE 100 changes over time due to various factors, such as market dynamics, company performance, and eligibility criteria (as seen below).

The Financial Times Stock Exchange, or Footsie, is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. It is seen as a gauge of prosperity for businesses regulated by UK company law. The index is maintained by the FTSE Group, a subsidiary of the London Stock Exchange Group. These funds are traded on stock exchanges just like shares and provide instant diversification. Whether you’re a new investor looking to understand global markets or a seasoned trader focusing on UK equities, the FTSE 100 is essential to know. This guide will cover everything from what the FTSE 100 is, how it’s calculated, key companies, performance trends, and how you can invest in it.

Company Eligibility

These derivative products allow traders to speculate on the future direction of the Footsie without having to own the underlying stocks. This can provide opportunities for profit, but also carries a high level of risk. Trading Market Signals is a leading online financial news magazine established in 2020. It provides comprehensive coverage of a wide range of topics, including stock market, financial and business news. One of the benefits of managed funds is they can give you more exposure to global markets through increased diversification. So, if the value of the FTSE were to drop, this could potentially be offset by other global investments held within the fund that are performing better.