IMPORTANT ANNOUNCEMENT: MyWalletHero is becoming The Motley Fool UK - click here to read more about our name change.

What is the FTSE 100?

What is the FTSE 100?
Image source: Getty Images


You have probably heard the FTSE 100 mentioned in the news. But have you ever wondered what the FTSE 100 is and how it works? If so, read on.

What is the FTSE 100?

FTSE stands for the Financial Times Stock Exchange. It was originally jointly owned by the Financial Times and the London Stock Exchange. It’s affectionately known as the ‘footsie’. 

Companies listed on the London Stock Exchange are ranked in terms of their market value, or market capitalisation (known as market cap for short). The FTSE 100 is a list of the top 100 largest companies in terms of market cap. 

How does it work?

You will probably have heard the FTSE 100 mentioned in the news in terms of a single figure that rises and falls in value.

The combined market cap of the top 100 companies is used to calculate a single figure. These companies are publicly listed and their value will change depending on their share price.

The figure changes throughout the day while the market is open, just like a share. The figure published in the evening news is its closing value at the end of that day.

What are the top 10 FTSE companies?

In terms of market cap, the current top 10 biggest companies in the FTSE 100 are as follows:

  1. Royal Dutch Shell – Oil and gas
  2. HSBC Holdings – Banking and finance
  3. BP – Oil and gas
  4. GlaxoSmithKline – Pharmaceuticals
  5. British American Tobacco – Tobacco
  6. Unilever – Consumer goods
  7. AstraZeneca – Biopharmaceuticals
  8. Diageo – Alcoholic beverages
  9. Barclays – Banking and finance
  10. BHP Group – Minerals

Why is it important?

Its performance is used as an indication of overall market conditions. It will change in response to political or economic events. This is because it responds to increasing or decreasing confidence in the market.

An excellent example of this was the fall in the FTSE 100 by more than 2,400 points from mid-February to mid-March 2020. The start of the Coronavirus pandemic prompted one of the largest falls in more than 30 years.

How does the FTSE 100 affect me?

So, what is the FTSE 100 in the context of personal finances?

Even if you don’t invest in the stock market, its performance can still have an effect on your finances.

For example, its performance will have an influence on your situation if you pay into a pension scheme. Especially if you are close to retirement.

As shown by recent events, a sharp fall in the FTSE 100 could be an indication of an imminent recession, which will negatively affect the economy. This is the reason why it is watched so closely by economists and investors.

Can you buy shares in the FTSE 100?

If you are wondering what scope there is for making money on the FTSE 100, there are a number of options.

You can’t invest in it directly, but you can trade on its performance. One of the most common ways is to invest in an index tracker fund.

Take home

The performance of the FTSE 100 is an important indicator of the general health of the economy. It is also a quick and easy way to gauge financial conditions at any particular point in time.

Further information about the companies in the index is available from the London Stock Exchange website.

Rated 5 stars out of 5 by The Motley Fool UK

Trade UK shares for just £2.95 and US shares for just $3.95 — with no platform fee!

The FinecoBank* Multi-Currency Trading Account offers UK investors highly competitive share-dealing rates across 26 global markets. Open your account using promo code TRD500-ML and during your first 3 months you can trade without incurring commission charges – up to a total commission amount of £500. (Terms and conditions apply.)

*Affiliate Partner. Important information and risk disclaimer: The value of shares and any income produced can fall as well as rise, and you may get back less than you invest. Exchange rate fluctuations can reduce the sterling value of any overseas holdings.

Was this article helpful?
YesNo

Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.