The FTSE 100, also known as the Financial Times Stock Exchange 100 Index or simply the “Footsie,” is a benchmark index for the largest 100 publicly traded companies listed on the London Stock Exchange (LSE) by market capitalization.
The index is a widely followed indicator of the performance of the UK’s leading blue-chip stocks and serves as a barometer for the UK economy.
What is the FTSE 100?
The FTSE 100 was launched on January 3, 1984, as a joint venture between the Financial Times newspaper and the London Stock Exchange.
The index started with a base value of 1,000 points and has since become one of the most recognized stock market indices globally.
It represents approximately 80% of the total market capitalization of the LSE.
The FTSE 100 is composed of a diverse range of companies from various sectors, including financial services, energy, pharmaceuticals, and consumer goods.
How is the FTSE 100 calculated?
The FTSE 100 is calculated using a market capitalization-weighted methodology.
This means that the index’s value is determined by the total market value of the companies’ outstanding shares, with larger companies having a more significant impact on the index’s performance.
The index is calculated in real-time and is updated every 15 seconds during trading hours.
Why is the FTSE 100 important?
The FTSE 100 is important for several reasons:
- Market Benchmark: The index serves as a benchmark for the UK’s leading blue-chip stocks, allowing investors to gauge the overall performance of the country’s largest companies.
- Economic Indicator: Since the FTSE 100 consists of the most prominent UK companies, it often reflects the overall health of the UK economy and investor sentiment.
- Investment Performance: Many investment funds and portfolios use the FTSE 100 as a benchmark to measure their performance, aiming to outperform the index over time.
- Passive Investing: The popularity of the FTSE 100 has led to the creation of index-tracking investment products such as exchange-traded funds (ETFs) and index funds, which allow investors to gain exposure to the performance of the index without purchasing individual stocks.
For investors, the FTSE 100 offers a way to invest in a diverse range of leading UK companies with a single investment product.
By investing in an index-tracking product that replicates the FTSE 100, investors can achieve a broad exposure to the UK market and reduce the risks associated with individual stock selection.
Additionally, the FTSE 100’s liquidity and real-time pricing make it an attractive option for both long-term investors and short-term traders.