The FTSE is actually FTSE Group and is a joint venture between the London Stock Exchange and Financial Times, (hence it is known as Financial Times – Stock Exchange).
17th August 2013
The FTSE 100 ended lower on Wednesday, with losses for companies going ex-dividend offsetting the impact of positive macroeconomic data, which lifted financial stocks. The FTSE 100 closed 24.51 points, or 0.4 percent, lower at 6587.43, with volumes only 85 percent of the 90 day daily average as a lot of traders were away from their desks in the traditional summer holiday period.
We all hear about the FTSE 100 every day on the news, and read it about in the newspapers – but what exactly is FTSE 100 and what does it mean and how does a fall or raise in the stock impact the stock markets. In this article, let us understand what is the FTSE 100 and the functioning of The Financial Times Stock Exchange 100 share index. The FTSE 100 or the Footsie, as you will sometimes see it written and pronounced is an index that measures the performance of the shares of the 100 largest companies listed on the London Stock Exchange, sometimes called as the LSE. It measures the daily share performance of those 100 firms.
For e.g: If the FTSE 100 is up, it means that more people are buying than selling and the share prices are up. Conversely, if people are selling shares the index goes down. There are several other indices such as the FTSE 250, and each one provides a quick snapshot as to people are making or losing money.
What is an Index ?
An index is a method of showing how well a stock market is performing. It enables investors to see how their own performance compares against the market as a whole, the index enables the investor to see the performance of outperforming or underperforming stocks. Each index consists of a number of companies and the level of index is based on a calculation of the average of all its constituent companies share prices.
The FTSE 100 is an index comprising of the 100 largest companies listed on the London Stock Exchange (LSE). These are often referred to as ‘blue chip companies’, and the index is seen traditionally as a good indication of the performance of major companies listed on the UK. The FTSE is actually FTSE Group and is a joint venture between the London Stock Exchange and Financial Times, (hence it is known as Financial Times – Stock Exchange ). FTSE 100 is the most famous index the company produces, the FTSE group also calculates over 100,000 indices, covering markets around the world, everyday. The FTSE 100 was launched on 3rd January, 1984 with a start value of 1000.0
Process of Entry and Exit
The changes in the index happen once a quarter, although if there are takeovers or mergers in between these times affecting the FTSE 100, the index will be changed accordingly. The process for reviewing the index is transparent and straightforward all companies listed on the LSE and eligible for the FTSE UK indices are ranked in order of their size or market capitalization. The market capitalization is calculated by multiplying the number of issued shares of a company and the current share price). A committee made-up of independent market experts meets in March, June, September and December and consider which companies should be allowed into the FTSE 100. A company which is in the FTSE 250 and climbs up the rankings into the top 90 companies finds a berth in the FTSE 100. Similarly if a FTSE 100 company falls into 101th position or below in the rankings, it will fall into the FTSE 250. So it just not the case of picking the 100 companies which perform well by market capitalization but a “banding system” is in existence which allows companies to enter and exit from the top 100. The banding system is in place so that there not many changes at each review, the index is kept fairly stable for investors not to have excessive and expensive changes made to their portfolios.