Are you looking for in-depth knowledge of the UK’s equivalent of the US Dow Jones Industrial Average (DJIA)? In this article, we’ll run a breakdown of the FTSE (nicknamed Footsie), its implication on the UK’s economy, and how to invest in FTSE 100 CFDs.
The FTSE 100 is one of the most critical global equity benchmarks that indicate the performance of major companies listed in the UK. It is the sole index which is not part of any Stock exchange. If the FTSE index goes up, the implication is that investors are bullish in the market. It measures the 100 largest companies on the London stock exchange (LSE) market and their impact on the nation’s economy.
FTSE stands for Financial Times Stock Exchange; it came into existence when it was first owned 50:50 by the Financial Times and the London stock exchange. It is the UK’s blue-chip stock market index, tracking the value of the 100 biggest companies on the London stock exchange.
What does the FTSE 100 show?
The Financial Times Stock Exchange (FTSE) reflects 80% of the London Stock Exchange (LSE) market capitalization. It provides an insight into the strength of the broader UK economy. Traders need to grasp the intricate relationship between the FTSE UK100/GBP, as news, economic, and political developments around Europe affect the FTSE index.
How is the FTSE 100 calculated?
The FTSE index constituents are weighted by market capitalization, which implies that the largest shares have the most notable influence. The FTSE 100’s level is calculated by using the individual companies’ total market capitalization and the index value. This calculation agrees with the industry classification benchmark (ICB).
What Companies Make the FTSE 100?
FTSE 100 company revenue breakdown by region in 2017 indicated that about 31.4% of the company is in the UK, 25.0% in Northern America, 22.7% in Europe, and 15.2% are in other parts of the world. The top 5 sectors of the FTSE 100 are oil and gas (15.4%), Banks (13.3%), Personal and household goods (12.8%), Healthcare (9.8%), and Basic Resources (8.2%). The top ten listed companies represent 47% of the FTSE 100 index value. Some of the top companies in the FTSE 100 include Royal Dutch Shell, HSBC Holdings, BP, GlaxoSmithKline, British American Tobacco, Unilever, AstraZeneca, and Diageo. Constituents of the FTSE 100 are determined every quarter, usually in March, June, September, and December. During this process, market capitalization is determined and decided whether the company gains entry into the index.
The FTSE 100 Index uses a relatively simple set of rules to select companies for inclusion; it is designed to rate the performance of the 100 largest companies traded on the London Stock Exchange. These companies pass a screening for size and liquidity.
What is the FTSE 100 trading at?
There is an inverse relationship between the FTSE 100 index and the British Pound. International firms generating profits overseas, by definition, earn more if they convert back to the weaker Pound. Like any stock index, FTSE 100 cannot be bought or sold like equity. Instead, it can be traded using CFDs, features, spread bets, or an exchange-traded fund product. It is one of the most popularly traded indices CFDs in the UK.
Investing in an ETF that tracks the FTSE 100 Index is a straightforward way of getting exposure to the London Stock Exchange Market’s largest companies.
How to invest in FTSE 100 CFDs
A trader can invest in the FTSE 100 using the Contract for Differences (CFDs). This will enable the trader to speculate on the price movement in either direction (go long or go short) of the market without owning any of the underlying assets. A second way to invest in the FTSE 100 is via spread bets, as with CFDs, are tax-free, and there is no ownership of the underlying asset. Finally, investors can trade FTSE 100 index individual FTSE constituents and ETF trackers with derivatives or outrightly buying their shares.
The following factors play a vital role in the FTSE 100 index: Political and economic events, interest rates, earnings report, and commodity prices. As with any other indices, FTSE 100 price movement can be affected by political and economic instability. Different events have different effects on the FTSE 100. For example, in 2008, FTSE 100 dropped by 391 points in a single day at one point, this was due to the banking crisis and the fears of a global recession.
Interest rates are another player in the FTSE 100 market. When they rise, interest repayments surge. Consequently, investment in FTSE 100 equities will fall as a result of decreased corporate profitability.
In August 2018, the Bank of England placed a base interest rate of 0.75%; this caused the FTSE 100 index to fall more than 1 percent.
Earnings report of the vital FTSE 100 constituents can cause an upward or downward hike. The price of commodities can significantly affect the FTSE 100 index. Because of its bias towards oil and mining stocks, with about 10% coming from mining, it can be influenced by the law of demand and supply by countries who are major players in the mining sector. In the FTSE 100, there are five oil companies and their share prices and are affected more by developments in the Middle East than in the UK. The FTSE 100 CFD traders have a lot to consider, including attention to global developments, strategy, and proper risk management, all of which are key to successful trading.
When does the FTSE 100 open?
The FTSE 100 opens at 8:00 am UK time closes at 4:30 pm. However, some markets will continue to quote prices on the index in advance of the opening time and after the closing time, because of the futures contract available to trade outside the regular trading hours. The FTSE is, however, most liquid during the market hours.
Conclusion
Prolific traders are always conscious of the constituent companies of the FTSE 100 and the market factors that influence the price movement. As with all investments, it’s essential to take the time to understand the structure and mechanics of the product. FTSE is not capital protected, and investors should be aware that losses up to the total capital invested can occur with all investments. However, profitable trading practices, including discipline and a reliable risk management profile, are necessary for success in trading the FTSE 100.