What Is the FTSE 100?
If you follow financial news for more than a day or two, you will hear the FTSE 100 mentioned constantly — "the FTSE closed higher", "the FTSE fell on rate fears", and so on. This guide explains what it actually is, how it is built, and why it matters, with no stock tips attached.
The FTSE 100 is the index most people in Britain picture the moment anyone says "the stock market". It is a single number built from the share prices of the 100 largest companies listed on the London Stock Exchange, and it moves up and down every trading day as those share prices change. If you have already read our guide to what a stock market index actually is, the FTSE 100 is simply the most famous UK example of that idea in action.
It is also the index that, more likely than not, is quietly sitting underneath some of the companies in your own Student Investor portfolio — so understanding how it works gives you useful context for the news you read while the Challenge is running.
TL;DR: The FTSE 100 is an index tracking the 100 largest companies listed on the London Stock Exchange, ranked by market value. It is reviewed every quarter, weighted so bigger companies move it more than smaller ones, and sits just above the FTSE 250 in size. Because most FTSE 100 companies earn the bulk of their revenue overseas, the index is better read as a barometer of big London-listed business than a direct scorecard for the UK economy.
What does "FTSE 100" actually stand for?
FTSE stands for Financial Times Stock Exchange, a name that gives away its origin. The index was launched on 3 January 1984 as a joint venture between the Financial Times newspaper and the London Stock Exchange, which is where the "100" part comes from too — it has always tracked exactly one hundred companies. The index is now run day-to-day by FTSE Russell, the index provider that manages the FTSE 100 alongside dozens of related indices covering everything from UK small-caps to global markets.
What the FTSE 100 actually tracks
In plain terms: the FTSE 100 tracks the 100 companies with the largest market capitalisation that are listed on the London Stock Exchange. Market capitalisation, often just called "market cap", is simply a company's share price multiplied by the number of shares it has in issue — a rough measure of how much the whole company is worth on paper.
A quick-facts table
| Fact | Detail |
|---|---|
| Launch date | 3 January 1984 |
| Number of companies | 100 |
| Weighting method | Market-capitalisation weighted |
| Review frequency | Quarterly (March, June, September, December) |
| Home exchange | London Stock Exchange |
| Index provider | FTSE Russell |
How the index is calculated — market-cap weighting in plain English
You do not need a formula to understand this, just an analogy. Imagine the FTSE 100 as a seesaw with 100 people sitting on it, each one representing a company. The heaviest people — the biggest companies by market value — sit closest to the middle, where their weight has the most influence on which way the seesaw tips. The lightest people, the smallest of the 100 companies, sit right at the end, where even a big wobble from them barely moves anything.
That is exactly how the index works. A 2% move in the share price of one of the UK's largest companies will shift the whole FTSE 100 far more than a 2% move in one of the smallest companies in the index, simply because the large company carries more weight. This is why news coverage of "the FTSE" often focuses on a handful of giant companies — banks, oil majors, pharmaceutical firms — even though there are 100 names in the index altogether.
Which companies are actually in the FTSE 100?
Rather than a single industry, the FTSE 100 is a cross-section of Britain's largest listed businesses, spread across sectors including banking, oil and gas, pharmaceuticals, consumer goods, and mining. That spread is part of the point: because no single sector dominates the index, a slump in one area (say, oil prices) does not automatically sink the whole FTSE 100 on its own, since gains elsewhere can offset it.
Household names that most UK readers would recognise by sector — a major high-street bank, a global consumer-goods group, a large pharmaceutical company — sit alongside less visible industrial and mining firms whose names are familiar mainly to investors. None of that is a recommendation to buy any of them; it is simply a reminder that "the FTSE 100" is a basket of very different businesses, not one single story.
FTSE 100 vs FTSE 250 — what's the difference?
The FTSE 100 covers the 100 largest London-listed companies by market value. The FTSE 250 picks up where the FTSE 100 leaves off, covering the next 250 companies by size after the top 100. In other words, together the two indices cover the 350 largest companies on the London Stock Exchange.
One practical difference worth knowing: FTSE 250 companies tend, on average, to earn a larger share of their revenue inside the UK than FTSE 100 giants do, which makes the FTSE 250 a slightly more "domestic" gauge of the British economy. We covered this directly when the FTSE 250 hit a record high — a useful comparison if you want to see the two indices move side by side.
Why does the FTSE 100 move? (and why is it in the news so often?)
The FTSE 100 moves for the same reasons any index moves: company profits (or disappointing updates), changes in interest rates, swings in the value of the pound, and global news that touches the industries the index is weighted towards. Because so many FTSE 100 companies are oil, mining or banking firms, the index can be unusually sensitive to things like oil prices moving or, less obviously, a handful of large companies falling even while the overall market rises — a pattern we unpacked in how the market rises when big stocks fall.
That sensitivity to a small number of large, globally exposed companies is exactly why the FTSE 100 ends up in the news on an almost daily basis: it is a quick, single-number way for journalists to summarise "how the market is doing", even when the real story is happening in just a few of its hundred members.
Is the FTSE 100 a good measure of the UK economy?
This is the nuance that trips up a lot of people the first time they meet the FTSE 100: roughly three-quarters of the revenue earned by FTSE 100 companies comes from outside the UK. Many of the largest names are genuinely global businesses that happen to be listed in London, selling goods and services around the world rather than mainly to UK customers.
That matters for how you read the headlines. A rising FTSE 100 does not automatically mean the UK economy is thriving, and a falling FTSE 100 does not automatically mean it is struggling. It is closer to a barometer for large, London-listed, often multinational business performance — influenced by the UK, but far from a direct mirror of it.
Why this matters if you're playing the Student Investor Challenge
You are very unlikely to build a Challenge portfolio without ending up holding at least one FTSE 100 or FTSE 250 company somewhere in it — between the two indices, they make up the backbone of the London market that most UK shares are picked from. Understanding how the FTSE 100 is built means that when a headline says "the FTSE fell 1% today", you can place that in context: is it a broad market move, or is it really just one or two heavily weighted companies dragging the average down?
That context is useful background while you track your own holdings on the Student Investor Challenge portfolio — not a signal to trade on, just one more piece of the picture alongside everything else you are learning about how markets actually work.
FAQ
What does FTSE stand for?
FTSE stands for Financial Times Stock Exchange, a reminder that the index was created jointly by the Financial Times and the London Stock Exchange back in 1984. The index provider is now called FTSE Russell, which runs the FTSE 100 and dozens of other indices around the world.
How many companies are in the FTSE 100?
Exactly 100, as the name promises. These are the 100 companies listed on the London Stock Exchange with the largest market capitalisation, ranked and reviewed every three months to make sure the list still reflects the biggest firms.
How often does the list of FTSE 100 companies change?
FTSE Russell reviews the index every quarter, in March, June, September and December. Any company that has grown enough to push its way into the top 100 by market value swaps places with one that has slipped below the cut-off, so the membership list is rarely identical from one quarter to the next.
Is the FTSE 100 the same as the UK stock market?
Not quite. The FTSE 100 is the best-known slice of the UK stock market, but it only covers the 100 largest companies listed in London. Thousands of smaller UK-listed companies sit outside it, many of them tracked instead by the FTSE 250 and other, smaller indices.
What's the difference between the FTSE 100 and the FTSE 250?
The FTSE 100 covers the 100 largest companies on the London Stock Exchange by market value, while the FTSE 250 covers the next 250 companies after that, typically mid-sized businesses. FTSE 250 firms tend to earn a larger share of their revenue inside the UK, which makes that index a slightly more domestic-focused gauge than the FTSE 100.
Does a rising FTSE 100 mean the UK economy is doing well?
Not necessarily. Roughly three-quarters of the revenue earned by FTSE 100 companies comes from outside the UK, so the index often reacts more to global events, commodity prices and the value of the pound than to the health of the domestic economy alone. It is better read as a gauge of large, London-listed businesses than a direct scorecard for the UK itself.
Next time "the FTSE" leads a news bulletin, you will know exactly what is being measured — and why a single number can move for reasons that have very little to do with the UK on its own.
Sources: LSEG — FTSE Russell, London Stock Exchange.
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