The FTSE 100 Explained: What It Is and Why It Matters

You'll hear "the FTSE" mentioned on the news almost daily. It went up, it went down, investors are nervous, investors are happy. But what actually is the FTSE 100, and why does it get so much attention?

The FTSE 100 (pronounced "Footsie") is a stock market index that tracks the 100 largest companies listed on the London Stock Exchange (LSE), ranked by market capitalisation. Market capitalisation is just the total value of all a company's shares. So the FTSE 100 is essentially a list of the 100 most valuable public companies in the UK. FTSE stands for Financial Times Stock Exchange — it was originally a joint venture between the Financial Times newspaper and the London Stock Exchange.

The FTSE 100 includes some of the biggest names you'll recognise: • Shell and BP (energy) • HSBC, Barclays, and Lloyds (banking) • AstraZeneca and GSK (pharmaceuticals) • Unilever and Tesco (consumer goods and retail) • Rio Tinto and Glencore (mining) The list is reviewed every quarter. Companies can be promoted or relegated based on their market cap — similar to football leagues.

The FTSE 100 is a weighted index. This means larger companies have more influence on the index's movement than smaller ones. For example, if Shell (one of the largest companies) has a big day, the FTSE 100 will move more than if a smaller company at the bottom of the list does the same. The index started on 3 January 1984 with a base level of 1,000. Today it trades well above that — which shows how much value has been created over the decades.

The FTSE 250 tracks the next 250 companies after the FTSE 100 — so companies ranked 101st to 350th by market cap. These are mid-cap companies. Together, the FTSE 100 and FTSE 250 form the FTSE 350, which covers the majority of the UK stock market. The FTSE 250 is often considered more "UK-focused" because many FTSE 100 companies earn most of their revenue internationally. If you want exposure to the domestic UK economy, the FTSE 250 might be more relevant.

You can't buy the FTSE 100 directly — it's an index, not a stock. But you can invest in index funds or ETFs (Exchange-Traded Funds) that track the FTSE 100. These funds buy shares in all 100 companies in the right proportions, so your investment mirrors the index's performance. They're popular because they offer instant diversification and typically have low fees. You can hold FTSE 100 index funds inside a Stocks & Shares ISA for tax-free returns.

The FTSE 100 is a useful barometer for the UK stock market, but it has limitations: It's heavily weighted towards a few sectors (energy, banking, mining, pharma) Many FTSE 100 companies are global — the index doesn't perfectly reflect the UK economy Day-to-day movements are often noise — long-term trends matter more As a beginner investor, understanding what the FTSE 100 represents is valuable. But don't stress about daily fluctuations. Investing is a long game. Remember: this is educational content, not financial advice. Always do your own research.