Presentation of the FTSE 100:
We shall initially take a few moments to summarise what exactly the FTSE 100 represents and how it operates.
Concerning its general definition, the FTSE 100, commonly known as the Footsie, is a stock market index that integrates, as indicated by its name, the top 100 companies quoted on the London Stock Exchange, or LSE, in terms of stock market capital.
As we mentioned briefly earlier in the introduction, this index is managed by the FTSE Group and the rate is updated every 15 seconds. Its quotation is of course updated during the trading hours of the London Stock Exchange, this is between 8 a.m. and 4.30 p.m., English time.
To better understand the operation of the FTSE 100 stock market index we can compare this, in its manner of operation, to certain American stock market indices such as the S&P 500 or the Dow Jones 30. This means that the rate of this index is calculated in the same way which is through the total stock market capital of the 100 companies of which it is composed. To summarise, this means that when the rate of this index rises this indicates that the total value of the companies of which it is composed has risen even though maybe the share capital of all the individual companies may have not. And, to the contrary, if we note a fall in the rate of the FTSE 100 this means that the overall capital of all the companies that compose it has fallen, not that all the individual companies have experienced a drop in their stock market capital.
Movements in the FTSE 100 rate are frequent and sometimes highly volatile. To comprehend the extent of this you simply need to examine a monthly stock market chart of this stock market index available through any reputable online broker. This high volatility calls for extreme prudence if you plan to speculate on this rate. As we shall examine in more detail later on, anticipating the rising or falling movements of this stock market index of course depends on the correct anticipation of a rise or fall in the stock market capital of the companies quoted in this index.
What is the current composition of the FTSE 100 stock market index?
Given that an analysis of the FTSE 100 index rate requires the identification of certain factors that could positively or negatively influence the capital of the companies included it is necessary to possess a thorough knowledge of its composition. This is what we shall now examine in detail.
It should first be remembered that the composition of this index, as with all stock market indices worldwide, is liable to change over time. Therefore, and since its initial quotation in 1984, the FTSE 100 stock market index has experienced changes in the list of companies that compose it according to increases and decreases in the companies’ stock market capital or following particular events such as mergers and acquisitions.
Another important point that should be underlined relates to the composition of the FTSE stock market index and concerns the fact that not all the companies represented are actually British. In fact this particularity is not a requirement as the company concerned simply needs to be quoted on the London stock exchange to be eligible for inclusion. Numerous companies actually quoted on the London Stock Exchange are in fact companies based abroad that also achieve a large part of their revenue abroad.
Given that this stock market index is composed of 100 stock market assets, we will not list all 100 of the companies of which it is composed. This you can easily find on any specialised website or even on your broker’s platform. However, we will briefly cover the current top 10 assets of this index:
- HSBC in the banking sector.
- AstraZeneca in the pharmaceutical sector.
- BP in the petroleum and energy sector.
- GlaxoSmithKline in the pharmaceutical sector.
- BAT, or British American Tobacco in the tobacco sector.
- Diaego in the alcoholic drinks sector.
- The BHP Group in the commodities sector (Australian company).
- The Compass Group in the contract catering sector.
- Glencore in the commodities sector (Anglo/Swiss company).
- Barclays in the banking sector.
Clearly, as indicated earlier, this composition is likely to change over time and it is therefore important to keep track of the assets that compose the FTSE 100 index in real time.
Which factors influence the rate of the FTSE 100 stock market index?
Of course, and as is the case with other stock markets and their indices worldwide, the two major factors that can particularly influence the rate of the FTSE 100 are economical and political.
Given that this index tends to reflect the British economy and its health, we can generally note a rise in its rate during periods of the country’s economic growth, and a fall during times of recession. But even so, the situation is not as simple as that and other exterior factors can intervene and influence this asset’s rate.
It is also necessary to complete a fundamental analysis taking into account the economic and political indicators that we will detail later, as well as a comprehensive technical analysis without ignoring the market psychology.
It should also be noted that there is a relative correlation between the American stock market indices and other worldwide indices and that a rise or fall in the major U.S. indices can therefore exert an influence on other indices such as the FTSE 100.
How to complete a technical analysis of the FTSE 100 rate:
A study of the stock market charts is of course extremely important if you plan to examine the FTSE 100 rate and its possible future movements. This is what we call a technical analysis.
This technical analysis therefore consists of studying the rates and historical movements of an asset in order to detect the configurations that enable the prediction of a rise or fall in the price or rate or an acceleration or reversal of a trend. For this it is notably important to take into account various factors including the market volatility, the direction of a trend and the fluidity.
The technical analysts or chart experts use technical indicators for this. These are the fine calculations created by economists and analysts with the objective of obtaining trading signals. Although these signals are not 100% reliable and are more representative of statistics and probabilities they are still highly popular with the investors.
Among the most used indicators for a technical analysis we note the Bollinger bands, the MACD, the Fibonacci lines, the moving averages, the pivot points and the support and resistance levels. With the majority of the online brokers it is not necessary to complete the calculations yourself as you can simply display them on the charts provided. It is however still necessary that you know how to interpret the indicators correctly.
The different ways to invest in the FTSE 100
There are several ways to invest in the FTSE 100, each with its own advantages and disadvantages.
- Investing directly in FTSE 100 shares: This method of investment involves buying individual shares in the companies that make up the index. This can be done through an online broker or a bank. The advantage of this method is that the investor can choose which companies to invest in. However, this method also carries risks as the performance of individual companies can vary considerably and can result in significant losses for the investor.
- Investing in FTSE 100 index funds: FTSE 100 index funds are funds that invest in all the companies that make up the index. They offer diversified exposure to the whole market. The advantage of this method is that management costs are generally low. However, index funds can also be subject to significant market fluctuations.
- Investing in CFDs on the FTSE 100: Investing in CFDs (Contracts for Difference) on the FTSE 100 is another way to invest in the index. CFDs are derivative financial instruments that allow you to speculate on the price movement of an underlying asset, in this case the FTSE 100 index. However, it is important to note that CFDs are complex financial instruments and carry high risks, such as loss of capital.