How the stock market works

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8. The FTSE indices

The most important indices for the London markets are:

• FTSE 100 (the 'Footsie')

  This is made up of the 100 largest quoted UK companies by market capitalisation. Usually they are companies over £2 billion in value. The FTSE 100 index is calculated every minute so that changes in the prices of the constituent companies are reflected 'instantly'. When you hear on the news that FTSE climbed 100 points it refers to this index.

  The composition of the FTSE 100 is revised quarterly, with new companies coming in to replace old ones as their market capitalisations change. Membership of the index has real commercial significance, because if a company slips into the FTSE 250 many tracker funds will be unable to invest in it, depressing the share price.

  Some argue that the system for selecting the FTSE 100 needs to be overhauled so that fashionable shares do not overwhelm the market at the expense of solid, profitable businesses.

• FT Actuaries All-Share

  This covers a much wider range of quoted companies, about 900 in all, accounting for 98% of the market. It is used as an important benchmark of investment fund performance. The index is calculated at the end of each day.

• FTSE 250

  The 250 largest companies after the FTSE 100. The index is calculated every minute.

• FTSE Small Cap

  550 smaller companies. The index is calculated every minute.

1. Why do companies list on the Stock Exchange? 2. Offers for sale 3. Offers by tender, and other methods of admission 4. The Official List 5. AIM and OFEX 6. Different types of share 7. Reasons for market indices 8. The FTSE indices 9. Sectors 10. Scrip issues 11. Rights issues 12. Convertibles 13. Warrants 14. Share buybacks 15. Shareholder perks 16. Suspension 17. Insolvency 18. Conclusion