Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Footsie

What it is:

Footise is slang for the Financial Times 100 Index, or FTSE, which is the most widely used benchmark for the performance of equities traded on the London Stock Exchange.

Started in January 1984 with an initial value of 1,000, the index contains the 100 largest U.K.-domiciled companies traded on the London Stock Exchange (based on market capitalization).

How it works (Example):

The stocks in this index represent more than 80% of the value of all issues traded on the London Stock Exchange. Because the index is weighted by market cap, its largest component stocks have the greatest influence on the index's value. The index is quite unusual in that it reweights its component stocks daily to represent the actual state of the market. Meanwhile, the index is fully rebalanced (that is, the FTSE adds or subtracts stocks from the index) on a quarterly basis.
 

Why it Matters:

Because it covers several industries and the market caps of its constituents compose the vast majority of the UK market, the FTSE 100 is one of the most widely followed European indexes. As such, it is the basis for a variety of funds, derivatives, and exchange-traded funds.

The top 10 holdings constitute 44.27% of the index's market cap. The industries may be diverse, but recent additions make it an index that is increasingly regarding as detached from the UK economy. The market-cap weighting creates a disproportionately high influence for large companies and the sectors in which they reside.