What it means
The FTSE 100 tracks the share prices of 100 large, eligible companies listed on the London Stock Exchange (LSE). It is often called the “Footsie.” Its constituents and their weights can change under the index provider’s rules, so it is not a permanent list of the same 100 companies.
The index is free-float-adjusted market-capitalization weighted: a larger company generally has more influence on the index, but shares not considered freely available to public investors are excluded from its index weight. An index level is expressed in points, not pounds. The commonly quoted price index reflects constituent share-price changes; a total-return version also accounts for dividends under its own calculation rules.
Although the FTSE 100 is widely used as a UK equity benchmark, its companies may earn revenue outside the UK. It is therefore not a direct measure of the UK economy. Nor can an investor place an order for the index itself: an index fund or exchange-traded fund (ETF) is a separate product designed to track it, with its own holdings, costs and trading characteristics.
How it is calculated
A simplified index-level formula is FTSE 100 level (points) = [Σ(price_i × shares_i × free-float factor_i) / divisor]. Here, Σ means add across constituents; price_i is company i’s share price in pounds per share; shares_i is its eligible share count; free-float factor_i is the proportion included for index weighting; and the divisor is an adjustment factor, measured in pounds per index point.
The numerator is the combined free-float-adjusted market value in pounds. The divisor converts that value into points and is adjusted as needed so events such as constituent changes do not, by themselves, create artificial jumps in the index. Actual index rules include eligibility, weighting and adjustment details beyond this simplified formula.
A constituent’s approximate weight is its free-float-adjusted market value / the combined free-float-adjusted market value. A weight is a proportion, usually reported as a percentage. It helps explain why identical percentage price moves in two constituents need not affect the index equally.
Worked example
The following is a hypothetical two-stock illustration, not an actual FTSE 100 calculation or index level. Assume both share prices are in pounds:
| Stock | Price | Eligible shares | Free-float factor | Adjusted market value |
|---|---|---|---|---|
| A | £10 | 100 million | 80% | £800 million |
| B | £20 | 50 million | 60% | £600 million |
- Multiply each price by its eligible shares and free-float factor: A is £10 × 100 million × 0.80 = £800 million; B is £20 × 50 million × 0.60 = £600 million.
- Add them: the adjusted market value is £1.4 billion. With a hypothetical divisor of £1 million per point, the illustrative level is 1,400 points.
- A’s weight is £800 million / £1.4 billion, or approximately 57.1%. If only A’s price rises by 1%, with shares, factors and divisor unchanged, the combined value rises by £8 million. The illustrative level rises by 8 points, to 1,408—about 0.57%.
Why it matters before you trade
An index move gives market context, not the expected result of an order in one stock. A single FTSE 100 constituent can move differently from the index because of company-specific news. Conversely, the index can move even when a particular constituent barely changes.
Before trading a UK-listed stock, distinguish index exposure from execution conditions. Check the stock’s own spread, trading volume, volatility, order size and execution conditions. These affect potential trading costs and fill uncertainty; an index level alone does not show them. If a basket contains several constituents, their combined weights and sector exposures also matter more than the fact that they share an index label.
How PreTrAIde uses it
The product facts do not state that PreTrAIde uses FTSE 100 membership or its index level as an input or verdict rule. PreTrAIde supports stocks on the London Stock Exchange. For a user-built stock basket, its pre-trade analysis assesses each line and the basket using measures including estimated spread, participation in daily volume, market impact, volatility, liquidity and concentration. It returns GO, NO-GO or MODIFY with reasoning; those verdicts are decision support, not recommendations. Users place any trades themselves through their own broker.
Common mistakes
- Treating points as a cash return: A 100-point move is not necessarily a 1% move. Divide the point change by the starting index level to calculate the percentage change.
- Assuming equal influence: Larger free-float-adjusted companies generally contribute more to index moves than smaller constituents.
- Confusing price and total return: The commonly quoted price index does not represent the same dividend-inclusive result as a total-return index.
- Using the index as a liquidity check: Membership does not tell you the spread or likely execution cost of a specific order.