FTSE - the London Stock Exchange index

FTSE 100 index

Similar to the American Dow Jones Industrial Average, the FTSE 100 index is the benchmark stock market index of the UK. Consisting of the 100 largest UK-listed stocks, measured in terms of liquidity and market capitalisation, it is almost entirely made up of companies domiciled in the UK, but its multinational reach makes it one of the most popular European-continent exchanges with traders.

FTSE stands for "Financial Times Stock Exchange", and it is one of the world's most traded stock indices. It is the index which is generally used to represent the general direction and the health of the UK's financial market.

The FTSE 100 index dates back to 1984, when it was launched on 3 January of that year, with a base value of 1000. During the dot-com boom of the early 2000s, it reached a high of over 6,930, but then fell back to around 4,434 due to the 2008 US subprime crisis.

A number of other indices have been introduced to run alongside the FTSE 100, including the FTSE All-Share Index and theFTSE 250, and they are popular with traders as well.

Around 40% of FTSE 100-listed stocks are held by foreign investors, which is slightly above the average in compared with other national indices. The main foreign holders of FTSE 100 shares are German, Japanese and French investors. This is probably explained by the fact that companies listed on the FTSE 100 are generally more international than those listed in other European indices, many of them carrying out a large part of their activities abroad and employing over two thirds of their employees outside of the UK.

What companies are part of the FTSE 100 index?

The FTSE 100 is made up of the 100 UK companies with the highest market capitalisation, and is the benchmark index most used on the London market. Each quarter, these stocks are reviewed by an independent body which is authorised to remove or add components, although no component may represent more than 15% of the value of the total index. Among the best-known companies in the FTSE 100 index, we can mention the following:

  • AstraZeneca - a British-Swedish multinational pharmaceutical and biopharmaceutical company with its global headquarters in Cambridge
  • Avast - a Czech multinational cybersecurity software company headquartered in Prague, Czech Republic. You might even be a user of their antivirus software!
  • BP (British Petroleum) - a British multinational oil and gas company headquartered in London
  • Lloyds Banking Group - a major British financial institution formed through the acquisition of HBOS by Lloyds TSB in 2009
  • Rolls-Royce Holdings - a British multinational engineering company that owns Rolls-Royce and is the world's second-largest maker of aircraft engines
  • Tesco - a British multinational groceries and general merchandise retailer - the third-largest retailer in the world

The FTSE 100 index brings together a wide range of industries, representing a large part of the UK economy. The industries that appear most often in the index are: mining, financial services, software and computer services, insurance, media, pharmaceuticals, retail, personal goods, telecom, banking, household goods and more.

A brief history of the FTSE 100 index

First of all, the term FTSE (or "Footsie") is the acronym for "Financial Times Stock Exchange", which is a combination of the Financial Times and the London Stock Exchange. But in terms of history, trading in the UK predates the index - stockbrokers have been trading stocks in the UK since around the 16th century.

The FTSE 100 index was launched on 3 January 1984 at an index level of 1,000, and had a combined value of approximately £159 billion, which was approximately 80% of the market capitalisation of the wider LSE.

In the FTSE indices, share prices are weighted by free-float capitalisation, so that the larger companies, with more of their stock "floating", make more of a difference to the index than smaller companies. The free float adjustment factor represents the percentage of all issued shares that are readily available for trading, rounded up to the nearest multiple of 5%.

Like many other global stock markets, the FTSE reached its all-time high with the end of the internet bubble in September 2000, exceeding the 7,000 threshold for the first time.

Companies listed within the FTSE 100

To appear in the FTSE 100 index, a stock must meet certain criteria that have been set in terms of trading volume and market capitalisation on the London Stock Exchange. Its issuers must also have retained significant assets or have a head office located in France.

The nationality of the issuer has no effect on the admission of a company to listing on the index. The measure of market capitalisation is based on the free float of the issuer's shares, with a required minimum of 15%. As the FTSE 100 is a market capitalisation based index, it stands out from many other well known global indices like the Nikkei 225 or the Dow Jones Industrial Average, all of which are price weighted indices.

Chart of the FTSE 100's evolution since its 1984 introduction

FTSE 100 chart

Historical performance of the FTSE 100 index

FTSE 100 year by year

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