Popular Indices for Traders: The UK 100 (FTSE 100)
What is the FTSE 100 Index?
The Financial Times Stock Exchange 100 Index more commonly known as the FTSE 100 or the “Footsie” index is a stock market index comprised of the 100 largest companies listed on the London Stock Exchange (LSE) in terms of market capitalisation. The FTSE 100 is now operated by FSTE Russell and was started in 1984 as a joint venture between the Financial Times and the London Stock Exchange.
As of the 31 January 2017, the 100 companies that make up the FTSE 100 had a market cap of over £1,795 billion pounds which represented approximately 39 % of the total London Stock Exchange market cap of £4,581 billion from a total of 2,261 companies.
Which Companies are Listed on the FTSE 100 Index?
The companies which make up the FTSE 100 Index span a wide range of industries including banking, mining, telecoms, oil and gas, as well as private equity. While many of the companies on this Index are headquartered in the UK, quite a few are international organisations with their headquarters located outside of the UK.
The constituents of the FTSE 100 Index are decided on a quarterly basis by a committee and the main basis for inclusion is the total market capitalisation of those companies at the end of the previous quarter. Companies from the FTSE 250 index that have experienced market capitalisation growth to the extent that they would occupy the 90th or better position on the FTSE 100 index, are listed on the FTSE index for the upcoming quarter.
At the same time, a company on the FTSE 100 index that experiences a market capitalisation reduction to the extent that it falls to the 111th or worse position, would be delisted from the index. If there are any mergers or acquisitions, the index is updated immediately instead of quarterly.
Top 20 FTSE 100 Companies as at 31 January 2017 by Market Cap
|Rank (by mkt cap)||List Date||Company||Sector||Mkt Cap £m|
|1||20-Jul-05||ROYAL DUTCH SHELL||Oil & Gas Producers||178,879|
|3||20-Dec-54||BP||Oil & Gas Producers||91,804|
|4||29-Jan-62||BRITISH AMERICAN TOBACCO||Tobacco||91,191|
|5||22-May-72||GLAXOSMITHKLINE||Pharmaceuticals & Biotechnology||72,512|
|6||26-Oct-88||VODAFONE GROUP||Mobile Telecommunications||56,095|
|8||01-Jun-93||ASTRAZENECA PLC||Pharmaceuticals & Biotechnology||51,492|
|11||08-Oct-86||LLOYDS BANKING GROUP PLC||Banks||47,062|
|12||23-Oct-07||RECKITT BENCKISER GROUP PLC||Household Goods||46,481|
|14||23-May-08||SHIRE PLC||Pharmaceuticals & Biotechnology||39,485|
|15||29-Dec-78||PRUDENTIAL PLC||Life Insurance||39,093|
|16||01-Oct-96||IMPERIAL BRANDS PLC||Tobacco||35,015|
|17||31-Jan-02||NATIONAL GRID||Gas, Water & Multiutilities||34,661|
|18||28-Jul-97||BHP BILLITON PLC||Mining||30,361|
|19||03-Dec-84||BT GROUP||Fixed Line Telecommunications||30,033|
How is the Value of the FTSE 100 Index Derived?
The value of the FTSE indices is calculated using market capitalisation, This means that the larger companies have a bigger influence on the value of the FTSE indices. The FTSE indices also take into account the free float capitalisation which means restricted stocks are ignored when calculating the market capitalisation using a Free float adjustment factor.
How can you trade the FTSE 100?
Three popular financial instruments to trade the FTSE 100 include ETFs, Futures and CFDs.
Stock Index futures are complex financial instruments that were initially developed as a hedging instrument for institutional traders to protect against a reversal in stock prices in a portfolio. However, with technological advances and tech-enabled trading, retail traders that have the required capital to trade futures have entered the market and speculate on Stock Index Futures like the FTSE 100 Future on The Ice Exchange.
CFDs offer retail traders much smaller contract sizes and therefore a smaller capital requirement. For example, a minimum trade of a UK 100 future, a derivative of the FTSE 100 would require a trader £14.57 at the current 7286 index points with a broker like London Capital Group compared to a single contract on the Futures exchange of £72,860. Unlike trading on an exchange, trading CFDs involves buying and selling the instrument from the broker, therefore find a trusted and regulated broker like London Capital Group is an important step for traders.
|FTSE 100 min Trade Example||CFD Future||Futures Contract|
|Example Broker||London Capital Group||LSE|
|FTSE 100 Index Value
(as at 21 Feb)
|Unit of trading||£10 * index point||£10 * index point|
|Contract Size||0.1 lot||1 Contract|
|Minimum Trade Size||£7,268
(scanning margin set by ICE)
*All information collected from https://www.lcg.com/uk/, see website for full terms and conditions. Example is for illustrative purposes only. Your capital is at risk. Last updated on February 21, 2017.
ETFs or electronic traded funds are investment products made of a group of assets designed to track the performance of the underlying asset, for example, the FTSE 100. ETFs can be bought from share dealing brokers like IG.
- FTSE 250 – this index does not include the top 100 companies which form the FTSE 100. The FTSE 250 is also referred to as “mid cap” index
- FTSE 350 – This index includes the FTSE 100 and FTSE 250 companies
- FTSE Small Cap – This index is made up of companies outside the top 350 companies
- FSTES All-share – This index is made up of the FTSE 350 and FTSE small cap companies and represents 98-99% of the UK market capitalisation
- DAX 30
- Dow Jones