FTSE Indices

What are FTSE Indices?

FTSE Indices, also known as Financial Times Stock Exchange Indices, represents the share index of the Global Financial Markets calculated through evaluation of the market capitalization of the companies covered in the FTSE Group which is wholly owned subsidiary of London Stock Exchange.

Explanation

Financial Times Stock Exchange (FTSE), which is also called “Footsie,” is an organization specializing in the evaluation of the Index of the financial marketFinancial MarketThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.read more. It provides the average free-floating index of the companies covered in the FTSE Group, which is calculated by multiplying the current market price of the share of the company with the number of shares issued in the market which are available for trading in the market. The purpose is to give the company’s having a larger share of market capital gets more attention and the driving force of the market index in comparison to the smaller companies. These indexes are updated in real-time and regularly.

History

FTSE Group is originally an independent organization, which is created through a Joint Venture between the London Stock Exchange & The Financial Times in the year of 1984. And currently, the FTSE group is a full-time subsidiary of the London stock exchange, and it provides the index based on the market capitalization ratio of all the blue chipsBlue ChipsBlue-chip stocks refer to the stock of large stable companies having market capitalization in billions that provide a good return on stocks, may provide dividends, have less risk and are considered to be safe investments. Examples of such stocks include Coca-Cola ltd, IBM Corp, Boeing Co., PepsiCo, General Electric (GE), Intel, Visa, Wal-Mart, IBM Corp, Apple, Walt Disney, Mc Donald’s, Goldman Sachs, Johnson & Johnson, etc.read more or companies that are listed under the London Stock Exchange.

FTSE Indices

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Source: FTSE Indices (wallstreetmojo.com)

Types of FTSE Indices

These indices are of different types, and some of them are as follows –

  • FTSE 100- This index is the most widely used index in the UK economy. It represents the overall performance of the UK economy by measuring the capitalized value of the market of the UK economy by taking the records and values of the top 100 companies listed on the London Stock Exchange, which are ranked based on their market capitalization. This index also resonates with the fluctuation in the exchange rate of currency ‘pound’.
  • FTSE 250- As the FTSE 100 is evaluated by using the capitalization value of the top 100 companies (can also be termed as Big Giants) in the UK Market, which almost covers the 80% of the total market capitalization; FTSE 250 is calculated by using the value of the next 250 companies (mainly ranked from 101th to 350th company).
  • FTSE 350- This Index is calculated by considering the market capitalization of all the 350 companies covered by the FTSE 100 & FTSE 250. This Index is less likely used in comparison to the FTSE 100 & FTSE 250. This Index, however, covers all the large-cap companies as well as medium-cap companiesMedium-cap CompaniesMid-Cap stocks are the stocks of the companies having medium market capitalization. Their capital lies between that of large and small cap companies and valuation of the entire share holdings of these companies range between $2 billion to $8 billion.read more.
  • FTSE Small Cap- This Index is calculated using the values of the companies that have relatively lower market capitalization and are large in number.
  • FTSE All-Share – FTSE All-Share Index accumulates and comprises the valuation of the FTSE 100, FTSE 250, and FTSE Small Cap.
  • FTSE Fledgling – FTSE Fledgling Index is comprised of the companies that are registered in the London Stock exchange and have relatively very small market capitalization and are not qualified in the evaluation of the FTSE All-Share Index. The companies that are newly registered are mostly comprised of this category, but it does not necessitate that only the newly formed companies are to be included.

Example

For understanding the concept, let’ take an example by analyzing the volatility and the opportunities that lie with the investment in FTSE Indices.

For example, let’s consider the following information in the table for evaluation of FTSE 100 –

FTSE Indices Example 1

Let’s evaluate the following scenario through a chart representation:*(The figures are hypothetical)

FTSE Indices Example

When the use analyzes the following chart, he can make the emphasis on what the period is providing the maximum profitability in the FTSE 100 index depending upon the short term investmentShort Term InvestmentShort term investments are those financial instruments which can be easily converted into cash in the next three to twelve months and are classified as current assets on the balance sheet. Most companies opt for such investments and park excess cash due to liquidity and solvency reasons.read more to be made as well as long term investment.

How to Invest in FTSE Indices?

There are different ways to invest in the FTSE. One cannot invest directly into a London Stock Exchange, but he can invest by purchasing shares of the company covered in the FTSE index or invest in Exchange Traded Funds (ETF).

For purchasing the shares in the companies listed on the London Stock Exchange, the investors have to register with an authorized dealer. The investor can purchase a single share of the companies to make his own index or can purchase shares as per his choice.

In case the investor wants to invest in all of the companies without relying on any single company or group of companies, the investor can invest in the Exchange Trade FundsExchange Trade FundsAn exchange-traded fund (ETF) is a security that contains many types of securities such as bonds, stocks, commodities, and so on, and that trades on the exchange like a stock, with the price fluctuating many times throughout the day when the exchange-traded fund is bought and sold on the exchange.read more (ETF) of FTSE. It comprises of all the companies related to the selected group like FTSE 100 or FTSE 250 etc. and let the investment of the investor grow at the same rate as the index of the particular group matures or grow.

Conclusion

FTSE Index evaluates and provides the overall capitalization value of the market and provides the companies or group of companies who have the most of the influencing power over the market. Investors can utilize the opportunity through investment and making a profit through the evaluation of the market and utilizing the fact that the market is volatile and dynamic.

Investors can make or earn profit in the short term through investment in shares of the FTSE through a broker and selling their stocks at their conveyance and profitabilityProfitabilityProfitability refers to a company's ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance.read more to keep their liquidityLiquidityLiquidity shows the ease of converting the assets or the securities of the company into the cash. Liquidity is the ability of the firm to pay off the current liabilities with the current assets it possesses.read more flowing, but this comes with subsequently greater risk of making a loss as well. In contrast, the investors who are more interested in long term investment and relatively low-risk rate can make their investment in the ETF plan of the FTSE Groups, which provide the Investment in diversified market competitor and thus results into the less overall risk associated with it. In current scenarios, the FTSE has recorded a downfall and depending upon the improvement in the situation; it can also result in an opportunity for the investors to make a profit.

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