Brought to you by http://www.HowToInvestInShares.co.uk - this video explains the FTSE 100 Index and introduces the other UK indices too.
0:31 FTSE 100
0:54 What Is An Index?
1:59 The FTSE 100 Index
3:27 Other Main Market Indices
5:11 Alternative Investment Market (AIM)
6:30 More information and FREE Guide at http://www.HowToInvestInShares.co.uk
The first thing to say about the FTSE 100 is that it is a UK index. Therefore it is to do with shares that are on the London Stock Exchange in the UK and it is an index. So what do we mean by an index.
An index is a way of understanding whether the overall market or the shares in the index element of the market have gone up or down over a period of time and by how much. It does this by starting at a point in time and a particular value in time. So in terms of the FTSE 100 index, it was started back in 1983 and it was started with a value of 1,000.
That's not a price and it's not a cost. It's just a number, an index number that it started with and at the time of making this video, the FTSE 100 index is round about the 6,000 mark. That means the index has gone up by 6 times in between 1983 and around March-April time of 2012 and by doing so it has vastly outstripped the value of inflation and of bonds and of savings and of any other form of investment that you could have made in that period of time.
So what is the FTSE 100 index then? Well, the FTSE 100 index is the top, or the largest, 100 shares on the UK stock market. Of course, as the share prices of those 100 companies change over time, that means the value of those companies change over time and the FTSE 100 index needs to keep in it the top 100 companies.
So every quarter, four times per year, the constituents i.e. the companies that sit in that FTSE 100 index, change. So those that are no longer in the top 100 drop out of the index and those that have now grown in size and ought to be in the FTSE index come into the index. In reality, it is a little bit more complicated than that. There are some rules associated with that so they don't get too much change from quarter to quarter but essentially that is the concept. So as we go forward in time, the FTSE 100 index always keeps in it, more or less, the top 100 companies by size.
All of the companies in the FTSE 100 index are part of the London main market. As I've said, the FTSE 100 index comprises the largest 100 companies and together they make up about 81% of the total value of all of the companies in the UK main market.
The next 250 companies by size are known as Midcaps and they are in the FTSE 250 index and by value they represent about 15% of the total value of the UK main market. Taken together the FTSE 100 and FTSE 250 are known as the FTSE 350 index and obviously that makes up about 96% of the value of the companies in the market.
The FTSE Smallcap is the next tier of companies and these make up about 2% of the market. If we add together the FTSE 100, the FTSE 250 and the FTSE Smallcap, then we get another index that is known as the FTSE All Share index.
There are yet even more companies that are far too small to be in any of those other indexes that I have already mentioned and they sit in what is known as the FTSE Fledgling index, which when added to the other indices mentioned, comprise the UK main market in total.
Now, as well as the main market there is another market known as the Alternative Investment Market or AIM, for short. This was set up fairly recently and its purpose was to allow smaller companies to come onto the London Stock Exchange and therefore to raise finance for their business by getting investors to buy their shares. The rules associated with AIM companies are not as stringent or as difficult to qualify for as they are on the main index. Hence why AIM companies, AIM shares, are classed as a bit riskier than those on the main index because the rules to qualify as an AIM company and float on the AIM market are not as stringent.
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