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What is FTSE 100?
The performance of the top 100 publicly traded firms listed on the London Stock Exchange is tracked by the FTSE 100, commonly known as the Financial Times Stock Exchange 100 Index. It is frequently used as a benchmark for the performance of mutual funds and other investment vehicles and is regarded as one of the most significant indications of the general health of the UK stock market.History of the FTSE 100
The Financial Times and the London Stock Exchange originally created the FTSE 100 in 1984. Only the top 100 businesses listed on the London Stock Exchange, ordered by market capitalization, were included in the original index.A group of financial analysts evaluates and modifies the FTSE 100's makeup on a quarterly basis. If a company satisfies certain requirements, such as satisfying specific financial stability and liquidity norms and having a market capitalization of at least £1.8 billion, it may be included in the index.
How the FTSE 100 works
Due to the fact that the FTSE 100 is a market capitalization-weighted index, each company's weight in the index is determined by its market capitalization or the total value of its outstanding shares. Companies with larger market capitalizations have a bigger impact on the index's overall worth.The market capitalizations of each of the 100 companies that make up the index are added together and divided by an amount known as the "index divisor" to determine the FTSE 100. This figure is used to account for shifts in the index's company composition and guarantee that the index's value remains stable over time.
The 11 sectors that make up the FTSE 100 include various businesses, including energy, healthcare, and finance. Each sector's performance is tracked and used to shed light on the stock market's overall trend.
Investing in the FTSE 100
Investors can take part in the FTSE 100 in a variety of ways. One of the most well-liked choices is to use exchange-traded funds and index funds (ETFs). These investment vehicles contain a portfolio of the index's constituent firms to mirror the performance of the FTSE 100.Investors can diversify their portfolio and obtain exposure to a variety of businesses by purchasing an FTSE 100 index fund or exchange-traded fund (ETF) without having to buy and sell individual equities. The practice of buying and holding a variety of investments over an extended period of time period rather than actively trading individual stocks is known as passive investing.
