FTSE 100
Tue, Apr 15The FTSE 100, also referred to as the Financial Times Stock Exchange 100 Index or simply the “Footsie,” serves as a benchmark index for the top 100 publicly traded companies on the London Stock Exchange (LSE) based on market capitalization. This index is a widely monitored indicator of the performance of the UK’s leading blue-chip stocks and acts as a gauge for the UK economy.
What is the FTSE 100? The FTSE 100 was established on January 3, 1984, through a collaboration between the Financial Times newspaper and the London Stock Exchange. It began with a base value of 1,000 points and has since evolved into one of the most recognized stock market indices worldwide. The index accounts for approximately 80% of the total market capitalization of the LSE. The FTSE 100 includes a diverse array of companies from various sectors, such as financial services, energy, pharmaceuticals, and consumer goods.
How is the FTSE 100 calculated? The FTSE 100 is calculated using a market capitalization-weighted approach. This means that the index’s value is influenced by the total market value of the companies’ outstanding shares, with larger companies exerting a more substantial effect 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 holds significance for several reasons:
- Market Benchmark: The index acts as a benchmark for the UK’s leading blue-chip stocks, enabling investors to assess the overall performance of the country’s largest companies.
- Economic Indicator: Given that the FTSE 100 comprises the most significant UK companies, it often mirrors the overall health of the UK economy and investor sentiment.
- Investment Performance: Numerous investment funds and portfolios utilize the FTSE 100 as a benchmark to evaluate their performance, striving to surpass the index over time.
- Passive Investing: The popularity of the FTSE 100 has led to the development of index-tracking investment products like exchange-traded funds (ETFs) and index funds, which enable investors to gain exposure to the index's performance without needing to buy individual stocks.
For investors, the FTSE 100 provides a means to invest in a wide range of leading UK companies through a single investment product. By investing in an index-tracking product that mirrors the FTSE 100, investors can achieve broad exposure to the UK market while mitigating the risks associated with selecting individual stocks. Furthermore, the FTSE 100’s liquidity and real-time pricing make it an appealing choice for both long-term investors and short-term traders.
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