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HIGHLIGHTS
- FTSE 100 is an index of 100 companies listed on the London Stock Exchange (LSE) with the highest market capitalisation.
- When FTSE100 rises or falls, it is actually the market cap of the companies listed on it that is changing.
The Financial Times Stock Exchange 100, or the FTSE 100, is an index of 100 companies listed on the London Stock Exchange (LSE) with the highest market capitalisation. Market capitalisation refers to the total valuation of a publicly listed company in the stock market and is calculated by multiplying the current market price of its share by the total number of outstanding shares.
Informally known as the 'footsie', the FTSE 100 index is used as a benchmark by global financial markets. It is also called the blue-chip index as its constituents are well-established companies with an excellent reputation.
How is FTSE 100 calculated?
The FTSE 100 represents the overall performance of its constituents. Since the market cap of companies depends on the share price, which keeps on fluctuating throughout the day. This means that when FTSE100 rises or falls, it is actually the market cap of the companies listed on it that is changing. Additionally, the index is market-weighted, which means that its constituents are weighted in accordance with their market cap. This means that a change in the share price of a bigger company will have more effect on the index than the price movement in a smaller company's share.
Significance of FTSE 100
The FTSE 100 index represents around 80% of the total market capitalisation of the London Stock Exchange. Since it comprises both national and international companies, it is said to be a good indicator of the UK's economy. Share prices generally move in response to current events, be it political or economic, affecting the investors' sentiment and their decisions to invest or disinvest. Therefore, a rise or fall in the performance of the FTSE 100 index gives an idea of how the country's economy is moving.
Eligibility criteria to be listed on FTSE 100
As mentioned earlier, to be on the FTSE 100 index, a company must be listed on the London Stock Exchange, and its market capitalisation must be among the top 100 companies on the exchange. To decide the weighting of the company on the index, its free-float adjusted market cap, which only takes into account the shares that are being traded in the open market, is considered.
What is the US equivalent of the FTSE 100?
The S&P 100 Index is the US equivalent of the UK's FTSE 100. Maintained by Standard & Poor's, the S&P 100 is a subset of the bigger index S&P 500, which comprises the 500 largest listed companies in terms of market cap.
