FTSE 100 Index and its Impact on Global Markets

FTSE 100 Index: Key Indices and Their Impacts on Global Markets

Global capital markets are heavily reliant on benchmark indices to keep track of equity valuation.

One of the most important among these benchmark indices is the FTSE 100.

This index is responsible for encapsulating the financial performance of the 100 largest companies listed on the London Stock Exchange.

These indices are not immutable. Ever since its inception, the FTSE 100 has changed from a domestic performance measure into an instrument that reflects macroeconomic shocks all over the world.

Global markets have experienced some of the most profound turbulences of the last decades due to current geopolitical events. The top 100 companies listed in the FTSE, for example, have reached record valuations, which pushed the index beyond the 10,000-point threshold.

In this article we will take a deeper look into the FTSE 100 companies, how to invest in the FTSE, and how this index, alongside others, influence and are influenced by global market dynamics.

FTSE 100: Basic Definition of the Financial Times Stock Exchange

Launched in January 1984 with a base value of 1,000 points, the FTSE 100 functions as a market-capitalization-weighted equity index.

It measures the performance, in real-time, of qualifying companies currently listed on the London stock exchange.

Its name comes from Financial Times Stock Exchange, resulted from a joint venture between the Financial Times newspaper and the London Stock Exchange Group. It is also often called the Footsie.

The index is currently managed by FTSE Russelll, responsible for ensuring accurate tracking of the top 100 companies of the stock market in the UK and setting the rules for qualifications.

At the end of the day, this index represents the elite tier of the UK’s corporate sector. We’re talking about blue-chips firms with massive operational scale, institutional stability, and top-tier liquidity.

When the index was launched, one of the main goals was it so that it would support the emerging market for derivative contracts, which is an essential component of financial markets today.

How is the FTSE 100 Calculated

The FTSE 100 is calculated in a very unique way.

It bets on free-float market capitalization weighting to determine the precise value of the index. This model differs from other price-weighted models because it tends to balance the mathematical impacts of constituents proportionally to total market value.

It also filters out shares held by governments and private parties, so only equity available for public trading influences the calculation of the Footsie.

Below we have an image provided by the Investing.com Academy to help you understand what accounts for the value of the FTSE 100.

Who is Included in the FTSE 100 Index and How It Impacts the UK Stock Market

The FTSE Russell group follows a rigorous method to define who is included in the index.

Every March, June, September, and December there are reviews to determine the index composition.

An aspiring company can automatically join the FTSE 100 when its total market capitalization rises to the 90th position among eligible companies.

If, for any reason, a constituent falls down to the 111th position or below, it is dropped out of the index.

These displaced stocks will then join the FTSE 250 index, which has been designed to account for mid-cap companies. Smaller firms, on the other hand, end up joining the FTSE All-Share.

Overall, FTSE 100 constituents rank among the highest capitalization companies in both Sterling and Euros. These are the rockstars of the UK’s economy, but they’re not limited to the British Isles, generating revenues worldwide. Examples include the HSBC Holdings, Shell, AstraZeneca, Unilever, etc.

The FTSE Group as an Economic Indicator for Financial Markets

Indices serve to give us insights into market sentiment across sectors and areas. Sometimes, just by looking at an index performance, you can assess how bad things might be in a certain part of the world. If the index is strongly associated with certain industries, you can forecast how these industries may affect global supply.

The FTSE Russell group heavily focuses in sectors like Banks, Health Care, Energy, and Industrial Goods.

Even more importantly to know: Although these are UK-based, most of them are global conglomerates. In practice, around 80% of their total revenue comes from outside the United Kingdom.

One thing to keep in mind is that this “geographic mismatch” creates an interesting effect in which there’s an inverse correlation between the British Pound and the index level.

When the Pound depreciates against the US dollar, the overseas earnings of these companies end up translating into a larger volume of British Pounds. What it does is inflate domestic market cap.

Tracking the Footsie can feel like tracking an investor sentiment index for global industrial health rather than a simple local indicator for the British Economy.

FTSE 100 and Other Indices: Understanding the Differences

Each index has its own methodology for calculations and number of constituents.

Some of the world’s most relevant indices are the S&P500 and the DAX 40. The local economy plays an important role in defining the most present sectors in each one of these indices.

For example, the S&P 500 is the main equity index of the United States. Although both the S&P and the FTSE employ similar free-float market-capitalization weighting, their sector allocations couldn’t be more different.

The S&P500 has a huge participation of technology and communication services. The FTSE 100, on the other hand, tends to be much less influenced by the tech sector. It relies much more on energy and basic materials.

Another comparison we could make would be with the Dow Jones, which is also American. It is a price-weighted index that allows companies with higher absolute share prices to enact a much larger influence, disregarding the company’s market valuation.

Index	FTSE 100	S&P 500	DAX 40
Number of Constituents	100	500	40
Weighting	Free-float Market Cap	Free-float Market Cap	Free-float Market Cap
Calculation	Price Return	Price Return	Total  Return
10-Year Return	~120%	~270%	~130%

How to Trade the FTSE 100 Using CFDs and Exchange-Traded Funds

Since the FTSE 100 is an index, you can’t directly buy shares or trade it. Investments in stock indexes are made indirectly via derivatives.

For long-term investments, ETFs offer the most efficient method to get exposure to the index. An FTSE ETF will purchase shares of all the 100 constituents in the exact proportion to their index weights. This is the most straightforward way to “invest” in the Footsie.

But if you’re interested in FTSE 100 trading, with a focus on volatility and short-term profits, you can turn to CFD trading. With it, you’re allowed to trade stock indexes without taking any physical ownership. You just deposit a small margin to your trading account and end up gaining full market exposure. Although it is a good option, you must beware of the risks involving margin.

With CFDs, you can practice different types of stock trading according to your strategies. With both day trading and swing trading available to you.

Main Risks When You Invest in the FTSE

When you gain exposure to an index, you’re gaining exposure to several assets and industries all at once. This is the main difference.

One of the most relevant risks is sector imbalance. The FTSE 100, for example, lacks a lot of participation from high-growth tech companies. If you had opted to invest in the Footsie instead of Nasdaq, for example, you would’ve lost a lot of the tech rally of the last decades. Take a look at a comparison between these two indices’ performances.

While the Nasdaq-100 had a Compound Annual Growth Rate of 16.26%, the FTSE 100 had a humble 4.90%.

A smaller CAGR is expected from an index that relies heavily on fossil fuels and traditional banking. But if you’re prone to FOMO (and most of us are, because that’s part of our human nature), you could end up frustrated. You’d feel as if the grass is much greener on the other side.

These indices, in general, are also highly sensitive to geopolitical shocks, since most of their constituents operate globally. We’re living in a time where these shocks are becoming increasingly more frequent and significant. Although it raises the alarm for increased risk, it also increases volatility, which is highly beneficial for traders looking for short-term gains.

Frequently Asked Questions

What is the US equivalent of the FTSE 100?

The US equivalent to the FTSE 100 is the S&P 500. Both benchmarks implement similar weighting methodology (free-float market cap) to track the largest publicly-traded companies in their respective countries.

How is the FTSE 100 different from the S&P 500?

The difference is mainly on industry concentration. The S&P 500 is heavily influenced by the tech sector and communication services. The FTSE 100, on the other hand, concentrates highly in traditional sectors like healthcare, financial services, etc. The FTSE 100 traditionally provides higher dividend yields, but may have lower CAGR.

What are the top 5 companies in the FTSE 100?

As of May 2026, the top 5 companies by market cap are the HSBC Holdings, AstraZeneca, Shell, Linde, and Arm Holdings. Some other relevant companies are the British American Tobacco, Rolls-Royce Holdings, and Unilever.

Conclusion

In this article, we approached the FTSE 100, the most important benchmark of the United Kingdom.

Knowing about benchmark indices is important, because it offers valuable insights about the global economy.

By following the Footsie, not only are you gaining awareness of how well the UK’s economy is doing, but you’re also assessing the impact of traditional industries, like financial services, in the world economy.

By following the DAX 40, not only are you gaining insights into the German economy, but you’re also able to understand how the industrial sector overall will be affected in the entire world.

At the end of the day, these indexes show us how interconnected the global economy is nowadays. And by keeping an eye on them, you’re able to develop more accurate and robust analyses, which translates into a more reliable understanding of what is going on with the world economy.