FTSE 100

Explained for new traders

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DEFINITION

FTSE 100

The FTSE 100 (also known as the Footsie or the UK 100) is the largest and most popular index in the UK. This is a group of stocks from the top 100 UK companies listed on the London Stock Exchange.

Most of the names you’ll see on the FTSE 100 are international companies. This means price movements don’t directly reflect the health of the UK economy as a whole. Instead, the FTSE 100 can be seen as a measure of the prosperity of businesses regulated by UK company law. It also means that the index is significantly affected by movements in sterling as a large proportion of its constituents make sales and derive their earnings in foreign currencies. The weaker sterling becomes, the cheaper these companies’ products and services are to overseas buyers.

So, what does this have to do with trading?

Traders can buy and sell shares of individual companies within the FTSE 100 with the aim of profiting from their success. However, it’s also possible to take a view on all the companies within the FTSE 100 by speculating on whether the index’s price will go up or down.

Example

  • The value of the FTSE 100 depends on the overall performance of all the stocks within the index. If you buy the FTSE on the expectation the index will rise, you will profit if your speculation is correct. Similarly, you’ll suffer losses if you’re wrong.

Based on the volume of trades, the FTSE 100 is one of the most popular markets here at Trade Nation. Our low fixed spreads mean we offer the best rates for trading the index. We also offer a range of educational resources and a top customer support team if you need help getting started.

Should you start trading the FTSE 100?

Trading inevitably involves risk, and whether you’re new to trading or an old hand, you’ll want to minimise these as much as you can. This will help you build confidence. And many novice traders believe that an index like the FTSE 100 is a good market to start with.

Compared with some of the alternatives, an index is relatively secure. The main reason for this is that when trading an index, you aren’t putting all your eggs in one basket like you are when trading an individual stock. The FTSE 100 covers a large number of stocks in a variety of industries, instantly diversifying your exposure. So, if a couple of companies in the index don’t perform the way you’d expected, hopefully you should be cushioned by other stocks in the index.

Plus, unlike individual stocks, an index can’t go bust and is very difficult to manipulate. There are some downsides if you’re trading a less popular index, like higher trading costs, but these generally don’t apply to the FTSE 100 because it’s so widely traded.

What’s the FTSE 100’s appeal?

The FTSE 100 has a strong appeal for traders keen to speculate on large multinational companies regulated in the UK. It is also one of the top global stock indices, and there are lots of interesting trading opportunities thanks to the UK’s impressive economic and financial status. At Trade Nation, we always recommend trading in line with your own interests. If you want to trade the FTSE 100, ideally you'll be keen to engage with UK stock market activities in particular.

To trade the FTSE 100, you may prefer to use a leveraged product where you only have to put up a small percentage of the trade's full amount (but please ensure you understand that profits and losses will be magnified in line with the total underlying value of the index). Your main trading cost is the spread the difference between the price at which you can sell and buy. The narrower the spread, the cheaper it is to trade. At Trade Nation we offer the narrowest spreads for trading the FTSE 100. And unlike many of our competitors, they won't widen if markets become volatile.

The FTSE 100 is market-weighted, not price-weighted

Most stock indices are either market-weighted or price-weighted. A market-weighted index means that the biggest companies in the group, as measured by market capitalisation, will have the biggest impact on its price movements. With a price-weighted index, the companies with the highest share prices will be the most influential. You may assume that the largest companies will also have the highest share prices but this isn’t always the case. The FTSE 100 is market-weighted and it’s important to know and understand this before you start trading it.

Why does this matter?

As the FTSE 100 is market-weighted, the largest companies are most likely to affect whether the value of the index goes up or down. Therefore, it’s crucial that you look at all the companies and find out how much influence each one has. After all, one major development in one company can make all the difference to the whole index. For example, back in 2019, BP’s strong performance almost single-handedly helped the FTSE 100 hit a two-month high.

OUR PLATFORM

Why trade the FTSE 100 with Trade Nation?

Anyone can be a successful trader regardless of background or experience. If you’re a beginner interested in the exciting world of the UK stock market, Trade Nation is the perfect place to start trading the FTSE 100, which we call the UK100.

Our practice account helps you get used to our trading platform without risking any of your own money, so you can grow confidence in the platform and your own strategies. You’ll have to sign up for a live account to access our full range of useful features, like our FCA-regulated trading signals and our Smart News

The Trade Nation platform has the narrowest FTSE 100 spread

We offer low fixed spreads that ensure your trading costs stay the same no matter what happens in the markets. This gives you a cost-effective way to trade the FTSE 100, where our spread is just 0.4 during the main trading session when the market is most liquid (7am to 9pm). We also have an excellent customer success team available to help you out 24 hours a day, Monday to Friday.

Join our nation of traders

Financial spread trading comes with a high risk of losing money rapidly due to leverage. You should consider whether you understand how spread trading works and whether you can afford to take the high risk of losing your money.