FTSE Indices

Last Updated :

-

Blog Author :

WallStreetMojo Team

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

Table Of Contents

arrow

What are FTSE Indices?

FTSE Indices, also known as Financial Times Stock Exchange Indices, represent the share index of the Global Financial Markets calculated through the evaluation of the market capitalization of the companies covered in the FTSE Group, which is a wholly-owned subsidiary of the London Stock Exchange.

FTSE Indices

FTSE Index evaluates and provides the overall capitalization value of the market and provides the companies or groups of companies that have the most influencing power over the market. As a result, investors can utilize the opportunity through investment and make a profit by evaluating the market and utilizing the fact that the market is volatile and dynamic.

Table of contents

FTSE Indices Explained

Financial Times Stock Exchange (FTSE), also called "Footsie," is an organization specializing in evaluating the financial market index. It provides the average free-floating index of the companies covered in the FTSE Group, which is calculated by multiplying the current market price of the share of the company with the number of shares issued in the market which are available for trading in the market. The purpose is to give the company that having a larger share of market capital gets more attention and is the driving force of the market index compared to the smaller companies. These indexes are updated in real-time and regularly.

Investors can make or earn a profit in the short term through investment in shares of the FTSE through a broker and selling their stocks at their conveyance and profitability to keep their liquidity flowing, but this comes with subsequently greater risk of making a loss as well. In contrast, the investors who are more interested in long-term investment and relatively low-risk rate can make their investment in the ETF plan of the FTSE Groups, which provides the investment in diversified market competitors and thus results in less overall risk associated with it. In current scenarios, the FTSE has recorded a downfall. However, depending on the improvement in the situation, it can also result in an opportunity for the investors to make a profit.

History

FTSE Group was originally an independent organization created through a Joint Venture between the London Stock Exchange & The Financial Times in 1984. And currently, the FTSE group is a full-time subsidiary of the London stock exchange. It provides the index based on the market capitalization ratio of all the blue chips or companies listed on the London Stock Exchange.

Types

FTSE indices historical data provide valuable insights into the movement of the market and give investors a clear picture of the market happening. To understand this concept in detail, let us understand its types through the discussion below.

  • FTSE 100- This index is the most widely used in the UK economy. It represents the overall performance of the UK economy by measuring the capitalized value of the market of the UK economy by taking the records and values of the top 100 companies listed on the London Stock Exchange, which are ranked based on their market capitalization. This index also resonates with the currency 'pound' exchange rate fluctuation.
  • FTSE 250- As the FTSE 100 is evaluated by using the capitalization value of the top 100 companies (which can also be termed as Big Giants) in the UK Market, which almost covers 80% of the total market capitalization; FTSE 250 is calculated by using the value of the next 250 companies (mainly ranked from 101th to 350th company).
  • FTSE 350- This Index is calculated by considering the market capitalization of all the 350 companies covered by the FTSE 100 & FTSE 250. This index is less likely used compared to the FTSE 100 & FTSE 250. However, this index covers all the large-cap companies and medium-cap companies.
  • FTSE Small Cap- This Index is calculated using the values of the companies with relatively lower market capitalization and large numbers.
  • FTSE All-Share - FTSE All-Share Index accumulates and comprises the valuation of the FTSE 100, FTSE 250, and FTSE Small Cap.
  • FTSE Fledgling - FTSE Fledgling Index comprises the companies registered on the London Stock exchange with relatively very small market capitalization and are not qualified to evaluate the FTSE All-Share Index. The newly registered companies mostly comprise this category, but it does not necessitate that only the newly formed companies are to be included.

Examples

Let us understand the concept in depth with the help of a couple of examples as discussed below.

Example #1

Let's consider the following information in the table for the evaluation of the FTSE 100:

FTSE Indices Example 1

Let us evaluate the following scenario through a chart representation:*(The figures are hypothetical)

FTSE Indices Example

When the user analyzes the following chart, he can emphasize what the period is providing the maximum profitability in the FTSE 100 index depending upon the short-term investment to be made and a long-term investment.

Example #2

In March 2023, Real Estate Investments Trust (REIT) was removed from FTSE indices due to a prolonged suspension of its shares. The suspension was sanctioned due to the inability of the trust to submit its annual financial report for the year ended (August 31st, 2022).

In January 2023, the authorities had warned that the trust would be dropped if it remained suspended for another 20 days. A full and final warning took shape in February 2023 where the 1.2 billion pounds trust was dropped from the index.

How to Invest?

There are different ways to invest in the FTSE. For example, one cannot invest directly in a London Stock Exchange but can purchase shares of the company covered in the FTSE index or invest in Exchange Traded Funds (ETF).

For purchasing the shares in the companies listed on the London Stock Exchange, the investors have to register with an authorized dealer. Then, the investor can purchase a single share of the company to make his index or purchase shares as per his choice.

If the investor wants to invest in all of the companies without relying on any single company or group of companies, the investor can invest in the Exchange Trade Funds (ETF) of FTSE. It comprises all the companies related to the selected group like FTSE 100 or FTSE 250 etc. and lets the investment of the investor grow at the same rate as the index of the particular group matures or grows.