What is the FTSE 100?
The FTSE 100 Index, launched on January 3, 1984, with a base value of 1000 points, represents the 100 largest companies listed on the London Stock Exchange (LSE) by market capitalization. Managed by the FTSE Group (trading as FTSE Russell), a subsidiary of the LSE Group, the FTSE 100 is a widely followed benchmark for the UK stock market. However, it may not fully reflect the performance of the UK economy because many of its largest constituents are multinational corporations with a significant portion of their revenues generated overseas. Investors seeking a more accurate representation of the UK economy might consider the FTSE 250 or FTSE SmallCap Index, which include smaller and more domestically focused companies.
How is the FTSE 100 calculated?
The FTSE 100 Index is calculated by weighing stocks listed on the London Stock Exchange (LSE) based on their market capitalization. The index includes the 100 companies with the highest market caps, with those larger companies having a greater impact on the index’s movements. The market capitalization of each constituent company is reviewed quarterly, and the index is adjusted as needed to reflect changes in market value. Key companies often found in the FTSE 100 include Royal Dutch Shell, GlaxoSmithKline, Unilever, and Barclays.
FTSE100 Companies (UK100) – Sector Breakdown
The FTSE 100 Index, representing the 100 largest companies listed on the London Stock Exchange, includes a broad range of sectors. Key sectors include Financials, with major banks like HSBC and Barclays; Energy, featuring giants such as Royal Dutch Shell and BP; Consumer Goods, with companies like Unilever and Diageo; and Healthcare, including GlaxoSmithKline and AstraZeneca. Other significant sectors are Industrials (e.g., Rolls-Royce), Utilities (e.g., National Grid), Telecommunications (e.g., Vodafone), Materials (e.g., Rio Tinto), Consumer Services (e.g., Tesco), and Technology (e.g., Sage Group). This diverse sector representation provides a comprehensive overview of the UK’s largest and most influential companies.
Historical trends of the FTSE 100 index
The chart above illustrates the yearly returns of the FTSE 100 Index from 2001 to 2023, highlighting its performance through various global economic crises, including the dot-com bubble, the subprime mortgage crisis of 2008, the 2018 global recession, and the COVID-19 pandemic in 2020. Despite these turbulent periods, the FTSE 100 exhibited resilience during the 2022 stock market decline, which was triggered by high inflation, Russia’s invasion of Ukraine, and US Federal Reserve interest rate hikes. Remarkably, the FTSE 100 ended 2022 down by just 0.84%, in sharp contrast to the S&P 500, which experienced a significant drop of 19.4%, marking one of its worst years in decades.
How to trade the FTSE 100 index with CFDs
The FTSE 100 Index itself cannot be directly invested in or traded, but investors can gain exposure to its price movements through CA Markets CFDs (Contracts-for-Difference). CFDs are financial derivatives that allow speculation on the price action of the FTSE 100 without owning the underlying assets. To trade the FTSE using CFDs, you open a position based on whether you believe the index will rise or fall. If the market moves in your favour, you make a profit; if it moves against you, you incur a loss. At the end of the contract, the difference between the opening and closing prices of the index is settled directly in your account, reflecting your profit or loss.
Trading the FTSE 100 via CFDs offers several advantages compared to buying and selling FTSE fund shares. Firstly, CFDs allow for the use of leverage, which can magnify your gains if the index moves in your favor, though it also increases potential losses if the index moves against you, so leverage should be used carefully. Secondly, CFDs provide the flexibility to take both long and short positions, enabling you to potentially profit whether the FTSE rises or falls, thereby offering more opportunities for profit. Lastly, CFDs have a lower barrier to entry, allowing you to start trading with less capital compared to purchasing shares of a FTSE index fund.
