In the world of stock trading, much investing activity is sorted by different stock indices. These are various groups of shares that are arranged according to a particular economy, market, or industry. One of the most well-known and widely-following stock indices in the world today is the FTSE 100, a trade index that follows the top 100 companies in the United Kingdom by market cap.
Some of the most popular stocks in the world are listed on the "footsie", as it is known, which is what makes it such a popular index. If you're a beginner trader looking to build a portfolio, the FTSE 100 is a good place to start. Before you trade FTSE shares, make sure to read our complete guide to the footsie, and how you can spot and invest in an FTSE riser.
What is the FTSE 100?
First, let's break down exactly what the FTSE 100 is, and what it means to trade FTSE shares. The FTSE is a trade index that marks the top 100 companies that are listed on the London Stock Exchange (LSE) by total market cap. When we say market cap, we mean the total number of shares issued by a company, multiplied by the market value of a share.
For example, if a company has issued 1 billion shares to date, and the current price of those shares is £4 each, then the market cap of that company would be £4 billion. This is why, if a company's share price falls, its market cap will also fall. When this happens, a company's position on a ranked index like the FTSE 100 will also fall.
If it falls to the point where the company's market cap is no longer in the top 100 in the UK, then the company will "fall out" of the FTSE 100 index. As you can imagine, the FTSE 100 is an immensely popular trade index, as it represents some of the world's most well-known, successful companies.
The top FTSE 100 risers of the decade
A number of companies have fallen in and out of the FTSE 100 index over the past decade, as their fortunes and their role in the wider economy have changed. In order to better understand how to trade index shares, it is worth looking at some of the top FTSE performers of the 2010s, and what has influenced their success.
JD Sports
The sports equipment retailer JD Sports was the top FTSE riser of the decade, with a 3,270% return from 2010 to 2020. If a person had invested £1000 in JD sports shares in January 2010, they would have had £32,700 worth of shares by the end of the decade. This reflects the fact that JD Sports and the products it offers exploded in popularity, as fitness trends reached new heights and our appetite for affordable, fast fashion grew with it.
Ashtead
Not all of the top FTSE risers are household names. For example, the construction equipment rental company Ashtead, which mainly serves customers in the US, saw returns of 3080% through the 2010s. This is partly because the company benefited from a near-record US construction boom, and was able to position itself as a pivotal market player at the right time.
Rightmove
Rightmove is the UK realtor company that allows people to search for homes and find mortgages via its website. The 2010s saw an unprecedented homebuying boom in the UK, along with a record rise in house prices, just as more of us embraced the internet for finding houses. As a result, Rightmove managed to offer investor returns of 1020% over the decade, making it one of the top FTSE risers.
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Why does the FTSE 100 rise and fall?
There are many reasons why the FTSE 100 index rises and falls. If you are investing in the indices as a whole, rather than in individual companies on the index, you will quickly notice that the value of your investment will fluctuate from day-to-day. Remember, the FTSE 100 is an index of 100 companies, so its value will match the combined market cap of all of those companies.
If you read that the FTSE 100 index lost £5 billion in value in one day, this means that the total market cap loss for all companies that are listed on the index amounted to £5 billion. Since diverse industries are represented in the index, it often rises and falls in line with the general economy and market sentiment. When things are generally bullish, the FTSE 100 will usually rise. When things are generally bearish, the FTSE 100 will usually fall.
How does a company get into the FTSE 100?
The FTSE 100 index works much like other major indices, such as the S&P 500 or the DAX 40. It is not a specialized industrial trade index. Rather, it is a simple measure of the top 100 LSE-listed companies by market cap. This is the sole definition of an FTSE 100 company.
To get into the FTSE 100, a company's market cap (i.e. share price and the number of shares) would need to rise to the extent that it ranked among the top 100 in the whole of the London Stock Exchange. If a company fell below this threshold, it would cease to be a member of the FTSE 100.
FTSE 100 investing: pros and cons
Let's take a closer look at some of the pros and cons of FTSE trading:
Pros
- The FTSE represents a diverse array of industries and sectors, making it ideal for a diverse portfolio.
- The FTSE trades on Greenwich Mean Time (GMT), one of the most convenient market trading hours in the world.
- The FTSE has historically offered good returns over the long run.
- The FTSE is widely-covered, meaning there are lots of resources to help inform your investing strategy.
Cons
- Better returns can traditionally be found in other indices, such as the US 100.
- The FTSE 100 has a lot of 'traditional' industries such as fossil fuels and banking, with few high-growth tech stocks.
- Other UK sectors, such as property, have shown much higher returns than the FTSE 100.
How to invest in CFD indices
If you're ready to start to trade FTSE, we have got you covered. You can use our Skilling Trader platform to start investing in a variety of index CFDs today. Here's what you need to do:
- Sign-up and create your Skilling Trader account.
- Read up on investing and trading in Skilling, with our helpful guides and tutorials.
- Top-up your account balance.
- Head to our FTSE 100 pages.
- Start investing today.
Not investment advice. Past performance is not indicative of future results.
