What Is the FTSE 100 Index (Footsie)?

Today we have a guest post for some of our UK readers. Enjoy!

Since 1984, the FTSE 100 (Financial Times Stock Exchange), also known as FTSE or ‘Footsie’, has been the principal index of the London Stock Exchange (LSE). It is an important indicator for investors around the world, providing insights into the overall health of the UK economy, one of the most important in Europe.

The FTSE 100 is made up of the 100 largest companies in the United Kingdom by market capitalisation, and its composition alters quarterly with the changing weight of the listed companies. The companies are classified according to the Industry Classification Benchmark (ICB), “a definitive system categorising over 290,000 securities worldwide, that enables the comparison of companies across 4 levels of classification and national boundaries”.

The Financial and Oil and Gas sectors are particularly important because they have greater weighting in the FTSE, and the price of these stocks strongly influences the index.

Ongoing Brexit negotiations are very likely to affect the banking system. The City of London’s status as the financial centre of Europe could be in jeopardy if the UK loses its European banking passport, which allows it to offer financial services in the other 27 EU states. Some major global banks have already decided to relocate their headquarters to other European cities after Britain becomes independent of the EU. Morgan Stanley and Citigroup chose Frankfurt last week, while French banks will probably opt for Paris. Overall, London could lose more than 10,000 jobs linked directly and indirectly to the banking sector.

The evolution of the FTSE is closely linked to fluctuations in the value of the British Pound. As the UK is a major exporter, the GBP and the FTSE 100 have an inverse relationship, also known as a negative correlation. Any change in the value of the Pound will move the index in the opposite direction, as British exports become either more or less expensive.

Since the outcome of the Brexit vote, the British currency has been negatively impacted, which has pushed the FTSE to record highs. Sterling fell from USD 1.4748  the day before the Brexit referendum to a low of USD 1.2003 in January 2017. Against the Euro, the Pound dropped from EUR 1.3150  to EUR 1.0800.

To trade on the FTSE, it is important to follow British economic and political news, especially developments regarding the country’s negotiations with the EU.

Some brokers offer index trading, which enables you to open buy and sell positions on this and other indices. UFX’s new platform, for example, offers trading tools, comprehensive technical indicators, and advanced charts, helping you to make better trading decisions on the FTSE 100.