FTSE 100 index

Definition

The FTSE 100 index is a stock market index that represents the 100 largest companies by market capitalisation listed on the London Stock Exchange. 

What is the FTSE 100 index?

The FTSE 100 index consists of the 100 largest companies listed on the London Stock Exchange based on their market capitalisation and come from various sectors.

The companies included in the FTSE 100 index are weighted by market capitalisation, meaning that the larger companies have a greater impact on the index’s value. This weighting system reflects the relative size and importance of each company within the index.

The FTSE 100 index is used as an indicator for the performance of the UK stock market as a whole. Investors, fund managers, and financial analysts often use it as a reference point to determine the performance of their investments, track market trends, and make investment decisions.

While the FTSE 100 index primarily represents the UK stock market, it also holds significance on the global stage. Many of the companies listed on the index are multinational corporations with operations and revenue streams spanning across the globe. Therefore, the performance of the FTSE 100 index can be influenced by both domestic and international economic factors.

Companies may be added to or removed from the index based on changes in their market capitalisation. This periodic rebalancing ensures that the index accurately reflects the current state of the UK stock market.

Example of the FTSE 100 index

Let’s say the FTSE 100 index is currently at 7,500 points. This means that the collective market value of the 100 largest companies listed on the London Stock Exchange corresponds to an index level of 7,500.

Let’s say Company X is a part of the FTSE 100 index and has a significant influence on its value due to its large market capitalisation. Positive news about Company X’s financial performance might cause the index to increase. Conversely, negative news might lead to a decrease in the index value.