A Review Of The FTSE 100 Index

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Video Transcription:

Hello traders, welcome to the stock trading course, and the second module stock market indexes. In this lesson we’re going to review the FTSE 100, or the “FTSE”. Now lets first define what the FTSE 100 is. FTSE stands for Financial Times Stock Exchange. And its an index made up of the 100 largest companies, listed on the London stock exchange. This index was developed with a base of 1,000 points in January 1984. This means that when this index was launched in January 1984, it started at the value of 1,000 points. Throughout its first 15 years the FTSE rallied constantly, up to the 6950 level in December 1999. The dot com bubble made the FTSE to drop sharply for a few years. It recovered from it, and it hit the 6700 level in October 2007. The financial crises of 2008 made the FTSE drop almost 3,000 points to a low of 3458 in April 2009. So you can see that this index, unlike the others we have looked at so far, has had very strong bear markets in the last 20 years.


Now let’s break down the FTSE. This is a market cap weighted index on percent’s around 70 percent of the value of the London’s stock exchange. This index is the benchmark for the performance of blue chip companies in the UK. When the index was launched, in 1984 the total market capitalization of the companies, in it was just over 100 million pounds. In the quarterly review in September 2014, the market capital, these companies stood at 1.79 trillion pounds. So you can see that even though the FTSE has had a lot of drops or sharp drops, and has come through very strong bear markets, it still holds very strong number today. This means that even though we’ve had some low points in the UK economy, we have recovered sharply to hit all time highs in the last few months. Now understanding the FTSE is pretty straight forward. Since this index is made up of the largest companies in the UK, it reflects the overall health of the UK stock market and its economy.

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Now let’s look at this FTSE chart, and this is a monthly FTSE chart, and you can see here that we made a high on October 27, 2007, and then we dropped sharply to the lows that we were talking about here around 3458. Now lets measure this drop in the FTSE since its inception in 1984. So you can see that the FTSE almost lost half its value during this bear market. It dropped 48.69 percent until we made this low in April 2009 around the 3460 level, and then we started to rally in a very strong boom market and hit the 7,000 level, right here a few months back. Now lets go back to the daily chart, and lets look at some close-ups on this boom market.

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Ok, this is the daily chart, and as you can see we have something. Well the bars are very tight because since May 2013, we have been trading in a very, very narrow range. Well not so narrow range but it has been very rangy here on the FTSE, but if you want to measure the drops, or the corrections in this boom market from the lows in 2009, you can see here that here we correct the 17.1 percent, and right here we corrected again 21.05 percent. Which is the biggest correction so far. Up until this correction from the all time highs at 7125, right here where we corrected, well about 20 percent, too. So basically the FTSE corrects even deeper than the indexes that we have looked at, but it is very representative of the UK economy’s health because of the large representation of the London stock exchange.

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