What is the Financial Times 100 Index (FTSE)?
The Financial Times 100 Index (FTSE), also known as the 'footsie,' is the most widely used benchmark for the performance of equities traded on the London Stock Exchange.
Started in January 1984 with an initial value of 1,000, the index contains the 100 largest U.K.-domiciled companies traded on the London Stock Exchange (based on market capitalization).
How Does the Financial Times 100 Index (FTSE) Work?
The stocks in the FTSE index represent more than 80% of the value of all issues traded on the London Stock Exchange. Because the index is weighted by market cap, its largest component stocks have the greatest influence on the index's value.
The index is quite unusual in that it reweights its component stocks daily to represent the actual state of the market. Meanwhile, the index is fully rebalanced (that is, the FTSE adds or subtracts stocks from the index) on a quarterly basis.
Why Does the Financial Times 100 Index (FTSE) Matter?
Because it covers several industries and the market caps of its constituents compose the vast majority of the UK market, the FTSE 100 is one of the most widely followed European indexes. It is also the most widely used United Kingdom stock market indicator, much like the DJIA is for the New York Stock Exchange
The Financial Times 100 Index is also the basis for a variety of funds, derivatives, and exchange-traded funds.
The top 10 holdings constitute 44.27% of the index's market cap. The industries may be diverse, but recent additions make it an index that is increasingly regarding as detached from the UK economy. The market-cap weighting creates a disproportionately high influence for large companies and the sectors in which they reside.