What is the FTSE 100?
The FTSE 100 or the Financial Times Stock Exchange 100 is an index made up of shares from the 100 biggest companies by market capitalisation on the London Stock Exchange (LSE). These are usually referred to as ‘blue chip’ companies with the index viewed as a good indication of their performance.
Launched on 3 January 1984, the index is ever changing as company values change due to performance, mergers and acquisitions, and the rising and falling value of companies. A review is undertaken every quarter to make sure the FTSE 100 accurately reflects the 100 largest companies. Companies included in the index must be denominated in pounds and must meet minimum float and stock liquidity requirements. While the companies in the FTSE 100 are listed in the UK, many of them make their money overseas.
The FTSE 100 is calculated by weighing all stocks listed on the LSE by market capitalisation. The total market capitalisation is affected by the individual share prices of the companies and as their share prices change throughout the day, so does the value of the index. When the FTSE 100 is ‘up’ or ‘down’, the change is being quoted against the previous day’s closing price. Stocks with higher market caps have more weight in the FTSE 100 and therefore have a bigger effect on the index’s price movements.
The FTSE 100 is used as a measure of the UK’s stock market.