FTSE 100 Index: What it is, Quotation and Components

The London Stock Exchange, also known as the London Stock Exchange in the FTSE 100 Index, is one of the oldest and most famous stock markets in the world and is certainly one of the most important in terms of investment movement. Its most faithful indicator is the FTSE 100, the index that most closely reflects the health of the UK stock market and brings together some of the best stocks in the world. 

What is the FTSE 100 Index?

An acronym for Financial Times Stock Exchange, the FTSE 100 is the UK’s leading stock index and measures the performance of the top 100 stocks, in terms of capitalization, free float and liquidity, of UK-based companies listed on the London market. The index is managed by the FTSE Group, an independent company, originally created as a joint venture between the Financial Times, the country’s most influential financial magazine, and the London Stock Exchange, and has been listed since January 3, 1984, starting from an initial base value of 1000 points.

Composition: Which companies it includes

Like our FTSE MIB, the S&P500, the CAC 40 and others, the FTSE 100 is a value-weighted index: the value is determined by the weighted average of the prices of the shares that compose it on the basis of their capitalization and is, therefore, periodically subject to revisions. The components of the index are in fact established quarterly, every March, June, September and December, according to a ranking that favors companies with the highest capitalization.

The one hundred companies that make up the index represent around 80% of the total market capitalization of the London Stock Exchange and this is why it can be considered an excellent indicator of the general health of the British market. It is a very varied basket, which includes all sectors of the British economy: food, petrochemical, pharmaceutical, banking, etc.. Among the companies in it there are, for example, giants of the caliber of BP, Unilever, Royal Dutch Shell, Vodafone, Barclays, which have been dominating the markets for decades, offering excellent guarantees and earning opportunities, especially for long-term investors.

Listing and Historical Trend

The solidity and depth of the companies that make up the FTSE 100 seem, in fact, to offer good hopes for growth at the expense of the fluctuations of time. Despite the considerable economic and financial turbulence of 2020 and the crash of March 2021, the index immediately recovered, returning above the 5700 threshold and maintaining a generally positive trend, closing 2021 with its best annual performance in five years.

One cannot, however, ignore the fact that, despite having risen 14.3%, UK blue-chip stocks underperformed their European and US counterparts. Behind this backdrop are likely investor concerns about the impact of Brexit on international markets and the crisis in the logistics and transportation sector following repeated lockdowns during the darkest stages of the Covid 19 pandemic.

It is clear that the index will face several challenges in the coming times and this makes chart study and price monitoring more necessary than ever, especially for those interested in seizing opportunities in the short to medium term.  

How to Invest in FTSE 100

There are many online platforms that allow you to invest in the FTSE 100, operating with DMA offers (Direct Market Access), direct access to the market, and, therefore, buying the desired or underlying stock, or with CFDs (Contracts for Difference), the so-called contracts for difference, derivative instruments that report the price of the underlying asset and allow you to take advantage of its variations.

The latter are particularly interesting because they allow you to invest on the upside or to make a short sale, should the need arise, and to deposit only a small percentage of the total value of your exposure. On the other hand, those who wish to have exposure to all the companies in the index, without having to purchase individual shares, could opt for investment in actively or passively managed mutual funds, which replicate the performance of the index by purchasing all the securities that make it up. 

Among the many online trading platforms that allow you to invest in the FTSE 100, the best known is certainly eToro, the world’s leading platform for social trading, which allows both the purchase of shares at zero commissions and the trading of CFDs, with or without leverage.

It has gained great popularity in recent years, thanks to its innovative CopyTrader services, a tool that allows you to automatically copy the positions of the most experienced and popular traders, and Social Trading, a set of unique features that make the platform almost indistinguishable from any other social network, allowing investors to exchange ideas, open discussions and share their progress.

Final Thoughts: Forecast for the Future

In light of the positive outlook for 2022, which sees a price rise of 4.1%, as well as a dividend payout of £83.7 billion in 2022 and £84.8 billion in 2023, the FTSE 100 remains an attractive choice for those looking for long-term investments. The possibilities of speculation are also good, to be examined after a careful fundamental and technical analysis: it is believed, in fact, that sideways trend phases will be rare and with CFDs it is possible to speculate both upwards and downwards. It is worth reiterating that no investment is totally risk free and that the FTSE 100 offers a synthetic risk index between 5 and 7, depending on the stock selected. The investment should be evaluated according to one’s own risk appetite, experience and overall portfolio exposure.

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