The FTSE 100 is a stock index representing the performance of the largest 100 companies listed on the London Stock Exchange (LSE) by market capitalization. The FTSE 100 was originally one of the most popularly traded indices, as it was viewed as the best indicator of UK stock market health. However, as the FTSE 100 has expanded to include more multinational companies, the FTSE 250 index has become a more accurate representation of the UK economy. The FTSE 100 live chart is updated and published every 15 seconds.
The name of the FTSE 100, or ‘Footsie’, is a combination of the Financial Times and the London Stock Exchange. Although the initials ‘FTSE’ are often used synonymously with the FTSE 100 index, the FTSE Group has several other indices, including the FTSE 250.
The FTSE 100 was launched on 3 January 1984 at an index level of 1000, and had a combined value of approximately £160 billion, which is approximately 81% of the market capitalization of the LSE. In 2015, the FTSE 100 exceeded the 7000 threshold for the first time – its previous record level was 6930.2, which was reached during the dot-com boom in December 1999.
To be included on the FTSE 100, a company must fulfill several requirements: it must be listed on the LSE, its price must be denominated in sterling (GBP) or euros (EUR) and it must meet certain criteria of nationality, free float and liquidity. There is a quarterly review of the Footsie constituents, and if a company fails to meet these conditions, its membership can be revoked.
When the FTSE 100 was first launched, it was full of homegrown talent, such as Barclays and Tesco, but it has since become barely recognisable due to mergers, takeovers and companies falling off the bottom of the list.
The largest change has been the still-growing multinational section of the Footsie, which spans more than 150 countries. Over the years, the FTSE 100 has included a host of global companies such as HSBC, Royal Dutch Shell and GlaxoSmithKline. This means that, not only are the index’s movements a weak indicator of UK performance, but its price is impacted by the exchange rate of the pound.
The FTSE 100 is capitalization-weighted. Although all its constituents rank among the top 100, their sizes can vary considerably – and on the FTSE 100 size equals influence. The most valuable companies in the index make more of a difference to the price than smaller companies. The top ten companies account for roughly 40% of the index’s value, which means it is important to keep up to date on their share prices for an accurate FTSE 100 forecast. Changes are calculated in real time, so, as the share prices of companies move, the price of the FTSE 100 will adjust in response.
It is essential for forex traders to understand the importance of the FTSE 100 forecast because it can be a useful indicator in predicting potential price movements of a currency. Rises and falls in the Footsie reflect events impacting the current UK economy, which can be anything from individual company news to global economic events – examples include the raising of interest rates and domestic politics, such as Brexit.
For the latest FTSE 100 news, visit our market news and trading strategies articles below.
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by Peter Hanks