What is the FTSE 100 and how does it work

The FTSE 100 is often mentioned in financial news, but what exactly is it? If you’re interested in investing, trading, or just understanding how the stock market works, learning about the FTSE 100 is a great place to start. This blog breaks it down in a simple, human way—no complex jargon, just real information that helps you understand the basics and beyond.

What is the FTSE 100?

The FTSE 100 (pronounced “Footsie 100”) stands for the Financial Times Stock Exchange 100 Index. It’s one of the most widely followed stock market indexes in the world.

Here’s what it means:

It tracks the top 100 companies listed on the London Stock Exchange (LSE).
These companies are ranked by their market capitalization—the total value of all their shares combined.
The FTSE 100 provides investors with a snapshot of the performance of major UK companies.

Why is the FTSE 100 Important?

This index is often regarded as a key measure of the UK economy’s health. When the FTSE 100 rises, it typically indicates that large companies are performing well. When it goes down, it can signal trouble.

Some key reasons why it matters:

Global Indicator: Many FTSE 100 companies operate worldwide, so the index reflects global economic trends.
Investor Confidence: Movements in the FTSE 100 impact investment decisions worldwide.
Benchmark Tool: Investors use it to compare their portfolio performance.

How Does the FTSE 100 Work?

Let’s examine how this index operates on a day-to-day basis.

1. Selection Criteria

Only companies listed on the London Stock Exchange.
Must meet specific size and liquidity requirements.
Reviewed and updated every quarter (March, June, September, December).

2. Market Capitalization-Based

Companies with the highest market cap are included.
If a company’s value drops, it may be replaced by a rising one in the quarterly reshuffle.

3. Weighting

Bigger companies have more impact on the index.
For example, a change in the share price of a massive company like Shell affects the FTSE 100 more than a smaller firm.

Who Manages the FTSE 100?

The FTSE 100 is managed by FTSE Russell, a subsidiary of the London Stock Exchange Group (LSEG). They ensure the index remains fair, consistent, and accurate.

Where Can You Track the FTSE 100?

Although the FTSE 100 is not a physical place or event, you can follow it:

On financial news websites
Through investment platforms
Using stock market apps

There’s no single venue to “visit” for the FTSE 100 because it’s an index, not a gathering or physical location.

When is the FTSE 100 Active?

The FTSE 100 trades during London Stock Exchange hours:
- Monday to Friday
- 8:00 AM to 4:30 PM (UK Time)
Closed on public holidays.

Is There a Cost to Follow or Invest in the FTSE 100?

Following the FTSE 100 is free. But if you want to invest in it, there may be costs involved:

Brokerage fees
Management fees for ETFs or mutual funds
Currency exchange charges (for international investors)

Always check with your financial platform for exact pricing.

Nearby Stays?

Since this is a virtual index, there’s no event or physical location to attend, so no nearby accommodations are needed. However, you’re ever visiting the London Stock Exchange. In that case, it’s located in Paternoster Square, London, and several hotels are nearby.

Benefits of Understanding the FTSE 100

Even if you’re not planning to invest right away, knowing how the FTSE 100 works has many advantages:

Financial Awareness: Understand market trends and global business health.
Better Decisions: Helps you make informed investment choices.
Risk Management: Helps in building a more balanced and diverse portfolio.
Global Exposure: Many FTSE 100 firms operate internationally, so you’re not just exposed to the UK market.

Perks of Investing in FTSE 100 Companies

If you decide to invest in these companies, here’s what you may gain:

Stable Returns: Many of these firms are well-established and have a steady performance record.
Dividend Income: Some FTSE 100 companies offer regular dividends.
Global Reach: Exposure to multiple sectors like energy, finance, healthcare, and consumer goods.

Who Should Care About the FTSE 100?

The FTSE 100 is relevant to:

Investors and Traders: For tracking large-cap UK stocks.
Business Professionals: To gauge economic health and sector performance.
Students and Researchers: As a study model for economics and finance.
Everyday Savers: Especially those invested in pensions or mutual funds.

Common Myths About the FTSE 100

Let’s clear up a few things:

Myth 1: It shows the UK economy perfectly.
Fact: Not always. Many companies in the FTSE 100 generate the majority of their income outside the UK.
Myth 2: It includes only British companies.
Fact: Some companies are global, but they are listed on the UK stock exchange.
Myth 3: It never changes.
Fact: It’s updated every quarter.

Conclusion

Understanding the FTSE 100 can make a big difference in how you view the financial world. Whether you’re an investor, a student, or someone who wants to be more money-smart, keeping an eye on this index gives you a broader view of the global market.

While the FTSE 100 isn’t an event you can attend, it plays a central role in the business world. Tracking it regularly and knowing what affects its rise and fall can help you stay ahead financially.

If you’re interested in learning more or exploring how to invest in FTSE 100 companies, visit the official page to get started:
Click here to visit and book your spot in the FTSE 100 investment journey