FTSE 100 Chart
The FTSE 100 is the most popular index in the United Kingdom, representing the largest 100 companies which trade on the London Stock Exchange (LSE). The market capitalization of the LSE is over $3 trillion dollars, making it one of the biggest in the world. The FTSE 100 consists largely of multi-national corporations, and is weighted by the market capitalization of each constituent. The UK index is owned and operated by the FTSE Group, a subsidiary of the London Stock Exchange Group. The index has been in existence since 1984 where it began trading at a value of 1000.
How to trade the FTSE 100
The FTSE 100 trades on the Intercontinental Exchange, or ICE for short. The exchange code is “Z”. One of the drawbacks for the small trader is the large margin requirements per contract (as of 8/2016 – ~£6,000). Futures do offer quite a bit of leverage, which can be a double-edged sword.
There are four expiration months – March, June, September, and December.
Exchange Traded Fund (ETF)
The FTSE 100 can also be traded via the iShares Core FTSE 100 UCITS ETF, ticker symbol – ISF – it trades on the London Stock Exchange. It is designed to mimic the price movements of the UK index. It is an effective way to trade the FTSE due to its low expense ratio and availability to investors of all size.
Options are available for both futures and the ETF. It is suggested that one familiarize themselves with how options work before trading them. This is one of the least capital intensive ways to trade the FTSE 100, as options premiums can be as low as a few pounds per contract. Traders can use options as a hedge or to speculate on the direction of the index, both up and down.
Contract for Difference (CFD)
This instrument was designed with the small trader or investor in mind. CFDs are constructed with futures contracts, but made into smaller contracts which require significantly less margin than futures contracts. Just like futures, these trade nearly 24-hours a day, 5-days a week. Most traders in the world outside of the United States have access to a broker who offers CFDs. These can be traded in both directions, long and short.
What impacts the FTSE 100?
Global macro-economic conditions weigh significantly on this index as it has large international exposure. A majority of the companies in the FTSE 100 have exposure to the global marketplace and are thus significantly impacted by trends in the global economy.
Central Bank activity impacts the UK economy and stock market as it does in other developed countries. Changes in monetary policy by the Bank of England (i.e. interest rate changes, quantitative easing) will have an impact on investor sentiment and market performance.
The FTSE 100 has a large concentration of stocks in a few key sectors. It is important to understand what stocks will move the index. Financial and consumer discretionary companies are the largest portion of the index (as of August 2016), making up approximately 40% of the total market capitalization.