FTSE 100 Definition: The FTSE 100 (pronounced “Footsie”) is a stock market index tracking the 100 largest companies listed on the London Stock Exchange by market capitalization. Launched in January 1984 with a base value of 1,000, it serves as the primary benchmark for UK equity performance and the most-traded UK index. The FTSE 100 is heavily weighted toward multinational companies — over 75% of FTSE 100 revenue comes from outside the UK — meaning the index reflects global earnings more than the British domestic economy and tends to rise when the pound weakens.
What Is the FTSE 100?
The FTSE 100 is the UK’s flagship equity index, comparable in stature to the S&P 500 in the U.S. or the Nasdaq 100 for technology. Its components are giants of British commerce: Shell, AstraZeneca, HSBC, Unilever, BP, GSK, Diageo, Rio Tinto, and BAE Systems among them. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.
What distinguishes the FTSE 100 from American indices is its international character. Despite being “the UK index,” most FTSE 100 companies generate the majority of their revenue abroad. Shell sells oil globally. AstraZeneca distributes drugs to dozens of countries. Unilever sells consumer goods in 190 nations. This creates a counterintuitive dynamic: when the British pound weakens, the FTSE 100 typically rises, because foreign earnings translate into more sterling. The index gained 14% in 2016 — the year of the Brexit referendum — while the pound fell 16% against the dollar.
How the FTSE 100 Is Calculated
The FTSE 100 uses free-float-adjusted market capitalization weighting. Each component’s index weight equals its free-float market cap (excluding insider holdings, government stakes, and other restricted shares) divided by the total free-float market cap of all 100 components.
Eligibility requires listing on the main market of the London Stock Exchange (not AIM), passing nationality tests for incorporation and tax residency, and meeting liquidity thresholds based on average daily trading volume. The index undergoes quarterly reviews in March, June, September, and December, with companies promoted or demoted based on rankings against the broader FTSE 250 and FTSE 350.
- Calculate each component’s free-float market cap — share price multiplied by free-float adjusted shares outstanding.
- Sum all 100 components’ free-float market caps — the total weighted market value of the index.
- Divide by the FTSE 100 divisor — calibrated to maintain continuity through component changes.
- Apply quarterly rebalancing — companies ranking 91st or worse are demoted to FTSE 250; companies ranking 90th or better are promoted to FTSE 100.
Worked example: Following the June 2016 Brexit referendum, sterling fell from $1.50 to $1.30 within days. Despite Brexit being widely seen as bearish for UK assets, the FTSE 100 rose 7% within a month. The reason: roughly 75% of FTSE 100 revenue is foreign-denominated. When sterling fell 13%, the sterling value of foreign earnings rose proportionally, lifting the FTSE 100. Domestic-focused UK indices like the FTSE 250 fell sharply over the same period.
FTSE 100 vs. FTSE 250 vs. S&P 500
| Aspect | FTSE 100 | FTSE 250 | S&P 500 |
|---|---|---|---|
| Components | 100 largest UK-listed | Next 250 UK-listed | 500 largest U.S. |
| Domestic revenue | ~25% | ~55% | ~60% |
| Sector skew | Energy, mining, finance | Mid-cap diversified | Tech-heavy |
| Pound sensitivity | Inverse (weaker pound → higher) | Positive (stronger pound → higher) | Limited |
| Created | 1984 | 1992 | 1957 |
Why Is the FTSE 100 Important for Traders?
The FTSE 100 is the gateway to UK equity exposure for global investors. Its components include some of the world’s largest multinational corporations, providing exposure to industries underrepresented in U.S. indices — particularly energy majors (Shell, BP), mining giants (Rio Tinto, Anglo American, Glencore), and pharmaceutical leaders (AstraZeneca, GSK). The index dividend yield typically runs 3.5–4.5%, considerably higher than the S&P 500’s 1.5%, making it attractive for income-focused investors.
The inverse pound correlation is the FTSE 100’s most-traded characteristic. When the Bank of England signals dovish policy or political uncertainty weakens sterling, the FTSE 100 typically benefits. The opposite occurred during the September 2022 mini-budget crisis under Liz Truss — sterling crashed to a 37-year low against the dollar, and the FTSE 100 held remarkably steady while domestic-focused UK assets collapsed.
The limitation is structural underperformance versus growth-heavy indices. The FTSE 100 has minimal technology exposure — no equivalent to Apple, Microsoft, or Alphabet. Over the decade from 2014–2024, the FTSE 100 returned roughly 30% (excluding dividends) while the S&P 500 returned over 175%. On PrimeXBT, FTSE 100 CFDs let traders express directional views on UK equity or hedge sterling exposure without buying individual stocks or ETFs.
Key Takeaways
- The FTSE 100 tracks the 100 largest companies on the London Stock Exchange, weighted by free-float adjusted market capitalization with quarterly rebalancing.
- Over 75% of FTSE 100 revenue comes from outside the UK, meaning the index reflects global multinational earnings rather than the British domestic economy.
- The FTSE 100 typically rises when the British pound weakens because foreign earnings translate into more sterling — the index gained 14% in 2016 while the pound fell 16% against the dollar.
- The FTSE 100 dividend yield typically runs 3.5–4.5%, considerably higher than the S&P 500’s 1.5%, making it attractive for income-focused investors.
- Over 2014–2024, the FTSE 100 returned roughly 30% while the S&P 500 returned over 175%, primarily because the FTSE 100 lacks the technology mega-caps driving U.S. equity outperformance.
