The FTSE 100 (known as “footsie”) is an index composed of 100 companies listed on the London Stock Exchange with maximum market capitalization. Like the S&P 500, it is a capitalized weighted index.

The FTSE is one of the most relevant indices, as it measures the results of the main companies in the United Kingdom, one of the most important economies in the world.

Companies that make up the S&P 100

Follow a list of the main companies listed on the FTSE 100 in descending order by weight *.

HSBC Holdings (8.00%)AstraZeneca (2.45%)SABMiller (1.88%)
Vodafone Group (5.76%)BG Group (2.40%)Standard Chartered (1.78%)
BP (5.46%)Barclays (2.26%)Prudential (1.73%)
Royal Dutch Shell A (5.02%)BHP Billiton (2.24%)National Grid (1.71%)
British American Tobacco (4.07%)Rio Tinto (2.11%)Tesco (1.68%)
Royal Dutch Shell B ** (3.52%)Unilever (2.02%)Lloyds Banking Group (1.67%)
Diageo (2.98%)Reckitt Benckiser (1.89%)BT Group (1.53%)

* As of September 23, 2013

When it comes to trading, it is essential to understand the importance of the main companies included in the FTSE (and of any stock index), since the fluctuations in those actions are the ones that can have the most impact.

The ten largest companies represent more than 40% of their value. Four of those ten are dedicated to the oil and gas business: Royal Dutch Shell A & B, BP and BG Group (data from September 2013). Therefore, an informed FTSE operator will keep up to date with the latest developments in the energy sector as well as aware of the news regarding prices and crude oil production.

** Royal Dutch Shell has class A and B shares. Both are similar in terms of what they offer to shareholders. The difference is that Class A shares are subject to the Netherlands withholding tax of 15% on dividends since those shares were originally part of the Dutch entity of the company before they were merged. The two types of shares are listed on the FTSE 100: RDSA and RDSB.

Admission in the FTSE

FTSE 100 companies undergo a quarterly review and membership in the index may vary as a result of it. The FTSE 250 is the index composed of the following 250 large companies in terms of market capitalization after those of the FTSE 100.

If a member of the FTSE 250 increases its market capitalization enough to surpass a current member of the FTSE 100, it may replace it.

However, to preserve the uniformity of the index, the company from the FTSE 250 must be part of the first 90 of the FTSE 100 or a current member must be located after position 110 to be replaced.

FTSE Value

The index was created in January 1984 with a basic level of 1000 points. Its maximum historical value was 6950.6, and it was registered at the end of 1999. Like most of the indices, the recent credit contraction has affected the value of the FTSE, which fell below 3500 in March 2009, although it has since recovered reaching over 6500, with an annual maximum of 6840.27 on May 22, 2013.

Does this mean that the value of the FTSE has multiplied almost sevenfold since 1984? Yes, although it does not necessarily mean that the value of the companies has increased sevenfold. A part of that increase is due to the accumulated inflation during the period. In addition, as with the national indexes, its members have evolved over the years and the list of companies included in the index has changed since 1984.

Historical evolution of the FTSE

Line graph of one day of the behavior of the FTSE from mid-2008 to September 2013.

FTSE calculation

The FTSE is calculated in a similar way to the S&P 500, since all the market capitalizations are added and the result is divided by the FTSE divisor. The index also presents a free float weighting, since it only takes into account publicly traded shares and not fixed assets held by the company itself or state investments. Each company receives a free floating adjustment factor that depends on the number of shares traded.

The calculation of the FTSE is thus the following:

Elements to remember when operating in the FTSE

  • FTSE 100 futures contracts can be traded from 7:01 to 19:59 (GMT), Monday through Friday.
  • The FTSE moves in sections of 0.50.
  • The margin required to operate in the FTSE is usually around 2% (that is, a 50: 1 leverage) with most brokers.
  • The minimum operation size is 1 index.
  • The currency of the FTSE is the pound sterling.

Operational Example

Imagine that we want to BUY 1 FTSE index, that it is currently trading at 6500 and that we have a trading account denominated in pounds sterling: the margin (or funds) that we must contribute to open this position would be £ 130.00. (£ 6500 (FTSE price) x 2% (required margin) = £ 130)

This amount can be seen in the “margin used” section of our trading platform.

If we have an account denominated in another currency, such as the euro, our margin will still be 2%, but the platform would automatically convert £ 130 to euros.

Imagine that the EUR / GBP exchange rate is 0.8400. We will see approximately € 155 in the “used margin” section of our euro account. Each movement in the FTSE is equivalent to 0.50 pence, so if the FTSE fluctuates up to 6505.50 we will have obtained a profit of £ 5.50 (or € 6.55 at the previous exchange rate).