FTSE 100 Index
What is the FTSE 100 Index?
The FTSE 100 Index is the benchmark index for the London Stock Exchange, generally referred to as the ‘footsy’. As the second half of the name implies, it is made up of 100 stocks that have the largest market capitalisation (share price times the number of shares issued) on the exchange.
Uses of the FTSE 100 Index
The FTSE 100 Index can traded by individual investors through to hedge fund managers. One of the benefits of trading an index is to reduce the effects of company specific risk. Trading the index means that you are not trying to ‘beat’ the index though specific stock selection but rather you are content with the indices’ performance. Indices are regularly used to hedge a position.
Risks of the FTSE 100 Index
The risks of investing or trading an index are that the entire sector is affected by a negative event. Negative news, economic or otherwise in the market may effect all the stocks that make up the index. There is also the ‘opportunity cost’ of not investing directly in a share in the index that may ‘take off’, and as such the percentage gain will not be as high.