As with most stock indices the Footsie 100 Index is a critical gauge of overall market performance. What makes the Footsie 100 Index somewhat unique is the fact that it is, indeed, one of the most widely referenced indices in the financial industry. The FTSE, as it is sometimes referenced, is simply a compiled index of shares of stock that represents 100 of the most financially sound companies found on the London Stock Exchange. More specifically these 100 indexed companies represent the most financially stable businesses with the highest market capitalization on the London Exchange.
The name of the index has its origin in the two companies that comprise its ownership. Those two companies are the Financial Times along with the London Stock Exchange. The initials of each word of each company create the acronym “FTSE” for which the index is now commonly called. The FTSE saw it’s beginning in the mid-1980s and has grown steadily since its inception. The FTSE represents slightly over 80% of total market capitalization of the London Stock Exchange. This fact in and of itself points out the importance and immense value of this key index. The companies that comprise the index are referred to as constituents, and are normally decided upon each financial quarter by FTSE ownership.
Each company listed on the FTSE is weighted according to the overall size of the company, and ultimately by its total market capitalization. This weighted average adjusts for a company’s size and keeps market capitalization averaging in check. The respective list of constituents found in the Footsie 100 Index include such highly regarded companies as Associated British Foods, BAE systems, BP, Barclays, Carnival, GlaxoSmithKline, HSBC, International Consolidated Airlines Group, Intercontinental Hotels Group, Land Securities Group, Lloyds Banking Group, Royal Bank of Scotland Group, Royal Dutch Shell, Scottish and Southern Energy, Standard Chartered Bank, as well as Unilever and Vodafone.
The FTSE has great financial significance and is important for a number of reasons well beyond the simple stock market indications that it typically represents. While the index clearly offers a check of the pulse and overall health of the market it has a much broader function as well. That function is to actually measure in some degree the overall financial health of the whole British economy. Because the FTSE provides a good indication of current economic conditions it tends to move in tandem with the country’s economy. When the economy is suffering and unemployment is high the Footsie 100 Index will move with a predictable downward trend. Conversely, when the economy is booming the index will move appropriately.
In addition, the FTSE is routinely traded on the open market by investors seeking short-term and long-term profits. A high volume of shares is routinely traded on the London stock exchange each day and can easily represent billions of dollars in trade share equity. Along with regular shares of the FTSE that are traded daily there are a number of derivative type products that are also traded each day which are coupled to the FTSE. From puts and calls to going long and short, the variety of investment options tied to the FTSE are extensive and at times complex.
The FTSE also plays a major role in mutual funds and professionally managed funds. Because the index is comprised of major corporations with very high market capitalization it is typical and expected that this key index would be included in many high-profile funds. This brings up a rather important point in that many retirement accounts are made up largely of mutual funds that are coupled to the FTSE. Large moves in the Footsie 100 Index can have lasting and profound effects on individual savers and those who depend on retirement accounts for meeting life’s financial obligations.
As is true with all investing, having a diverse and balanced investment strategy that includes the FTSE is usually the best approach to long-term financial security. The FTSE is like many other large financial indexes in that it exhibits cyclical fluctuations over a period of time that can be somewhat predictable. Knowing this basic truth should give those who invest in the FTSE index, as well as other stock indices, some level of relief. The idea is simple in that when a market, a stock, or an index trends downward then in time it will eventually trend upward once again.
As the financial world continues to become more global in nature, indices such as the FTSE will play a growing role in measuring the economic health of a country. It has been suggested by some that trading major indices like the FTSE is analogous to trading whole countries. This further adds to the complexity of financial products such as the FTSE index. Another factor that plays into major indices trading like the Footsie 100 Index is the impact that foreign-currency trading has on global markets in general.
The health of a country’s currency certainly comes in to play and becomes a major factor when talking about important indexes like the FTSE. Billions of dollars in various currencies are traded globally each and every day and are having a larger and larger impact on other financial products such as the FTSE. As global markets continue to evolve and change one thing is certain, and that is that no one can really predict how financial globalization will ultimately play out. The good news is that more countries are beginning to trade precious metals in exchange for commodities. This new way of doing business will ultimately have an impact on global markets as a whole.
It is obvious and clear that the FTSE index is a critical financial gauge that has a long and trusted history. The Footsie 100 Index will likely continue to shine among the greatest indices of all times, yet this index along with others must be flexible and be willing to change with changing economic conditions to endure and truly survive in the long run. The London Stock Exchange is arguably one of the greatest financial powerhouses on the planet, and the FTSE index is the true and undisputed lifeblood of this great powerhouse.