The FTSE 100 Index or the Financial Times Stock Exchange 100 Index, UK100 or in trader's terms, the "Footsie", is a share index comprising 100 companies listed in the London Stock Exchange selected via those with the highest market capitalization. The index is managed by the FTSE Group, a London Stock Exchange Group's subsidiary. Because stock indices provide market investors a way in gauging the collective equity market, the FTSE 100 help traders monitor the performance of leading UK stock shares in real time.
The FTSE 100 is widely considered as an important indicator of the performance of the companies in the United Kingdom and the country's economy in general. It normally appeals to investors looking for some exposure to giant UK companies. Although some from its list are companies based outside of the UK, it is mostly comprising of UK-based companies impacted by the daily economic and market activity in the UK.
UK100 is a type of investment that can be accessed through the eToro online platform. It may seem hard for beginner traders but we've put together this guide that explains what you need to know to trade it. Learn how to invest on this index by continuing reading this article.
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History of FTSE 100
The FTSE 100 was launched by the London Stock Exchange and the Financial Times of London on January 3, 1984 covering several blue-chip and a variety of companies listed on the LSE. The original companies listed in this index were 100 UK-based companies with the highest market value.
The FTSE 100 reached an all-time high of 7877.45 points on May 22, 2018. As of May 2020, the total market cap of the FTSE 100 is over $2.5 trillion.
How is FTSE 100 Calculated?
The FTSE 100 index is calculated by weighing the stocks of companies listed on the London Stock Exchange (LSE) by market capitalization. The top 100 companies with the biggest market cap makes the cut. Companies that has the higher market capitalization represents a significant weight in the index and stocks with the higher weightings will have a bigger effect on the pricing of the FTSE 100.
For example, changes in the some of the biggest companies in FTSE 100 like Rio Tinto, British America Tobacco, and Royal Dutch Shell, will cause a bigger impact on the overall index than the smaller companies in the index like Avast Plc, Kingfisher Plc or Burberry.
Top 5 FTSE 100 Companies
As of January 2021, there are the top 5 companies by market cap listed in the FTSE 100 index:
- Royal Dutch Shell
- HSBC Holdings Plc
- BP Plc
Factors to Consider When Trading FTSE 100
The FTSE 100 index is often affected by these factors:
- Exchange rates: Fluctuating exchange rates is one of the leading factors that affect the prices of the FTSE100.
- Economic events: World events such as Brexit, can cause significant impact on the prices of indices. Following the example of the Brexit, the price of the FTSE 100 has since moved inversely with the UK pound since the 2016 referendum.
- Commodity prices: Since more than 15% of the companies included in the FTSE 100 are commodity stocks, fluctuations in the price of commodity can also influence the price of the FTSE 100
Other leading factors also include news releases and earnings reports from companies listed in the FTSE 100.
How to Trade FTSE 100?
There are numerous ways of trading indices such as the FTSE 100. You can trade via cash indices, index futures, options, stocks, exchange-traded funds (ETFs) but one of the leading and easiest ways is through contracts for difference (CFDs).
Trading FTSE 100 via ETFs
You can invest in ETFs that track the performance of the FTSE 100. These are derivatives that allow you to invest on this index. The "funds" of an ETF follow a particular market or index and are designed so they match the needs of financial institutions and individual investors. ETFs are created by experts in each field to provide investors with different types of stocks. When you buy, it's important to consider monetary risk and other future risks associated with buying foreign stock.
Trading FTSE 100 via Futures
Futures contracts are one of the most common types of derivatives and provide an easy and convenient way to trade the FTSE 100. This contract outlines what you're selling, when it will take place, and what value will be traded. FTSE 100 contracts, unlike most futures contracts, do not have a physical form to exchange. What's more, indices are just simplified representations of various stocks so there's no need for them to be traded physically or even be exchanged.
Trading FTSE 100 via CFDs
CFDs are financial instruments that allow traders to get an opportunity to earn from the price movements of an asset or a security without needing to own an underlying security or asset. When trading CFD, an investor enters an agreement with a broker to exchange the difference in the price of the asset from the point when the contract started to the point when the contract is closed.
You can be long or short on FTSE 100 using CFDs. Trading the long side means that you have used a buy order as your opening trade. This means that you are anticipating a rise in price and will use a sell order to close your position. Trading the short side means that you have opened your trade using a sell order.
Trading FTSE 100 CFDs with eToro
To get an exposure to the FTSE 100 indices, you can trade via the method of contract-for-difference (CFD) trading using a brokerage platform such as eToro.
By speculating on the price movements of the shares listed on the FTSE 100, you can achieve full exposure using only a small amount (referred to as margin) despite not taking any ownership of any financial assets.
How to Trade FTSE 100 in eToro?
- Create an account on eToro or log-in your account for existing users.
- Click "Discover".
- Select "Indices".
- Look for "UK100".
- Select BUY or SELL.
- Key in your desired amount to invest or the number of UK100 units you want to trade.
- Review and set the stop loss, leverage, and take profit parameters.
- Select "Open Trade".
Is It Wise to Invest in FTSE 100?
If you are looking to invest, then investing in the FTSE 100 might be a good idea. Clearly there is oldies risks with this type of investment and there can be too high oldies risks with not investing. When you're analyzing indices or stocks, it's important to figure out why they're cheap. You don't want to buy something that's temporarily undervalued (a company will recover) or pick an industry that isn't thriving (it's easier for a company in a successful sector to rally). There are no guarantees that the particular stocks or sectors identified will perform well because it is up to the companies to do their job.
Make sure to study the four trading styles of day trading, scalping, swing trading and position trading before you fully dive into indices trading. You can also use eToro's CopyTrader feature to copy the trading styles of some of eToro's successful indices traders to get an idea on how they approach index trading.
Ready to trade FTSE 100 with eToro?
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.
Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.
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eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.