Business means more than business: Why the FTSE 100 is an economic marker for the UK

Financial Markets

Business matters. Your business matters, but so do others. In fact, even if you’re not a business owner or not interested in business, the biggest businesses in the UK are important.

Why? Because the financial fortunes of major corporations not only impact the economy; they’re a reflection of the economy.

For example, if the travel industry is struggling and the share prices of major airlines are down, it’s probably because people aren’t going on holiday. The reasons people might not be travelling could be numerous. However, on a macro scale, it suggests there’s a problem. This problem could be political, societal, or cultural. Whichever area it falls into, it will have an economic impact on most of the public.

Trading on the Economy

Financial experts understand this, which is why the Financial Times Stock Exchange (FTSE) 100 Index was created. Like the Dow Jones in America, the FTSE 100 is an index of the largest companies listed on the London Stock Exchange. A company’s place on the FTSE 100 is determined by its market capitalisation – i.e. its value. To put it another way, a company’s revenue and the value of its shares will determine whether it has a place on the FTSE 100. Following the advent of online trading, this is something many more people are now aware of.

In addition to having the option to buy shares in a company, the public can turn to online trading for the ability to speculate in other ways. Contracts for difference (CFD) trading is one of the most popular trading avenues when it comes to the FTSE 100. Using a list of the best CFD broker sites available online, consumers can even choose to spread their risk by using multiple platforms. By judging a broker’s reviews, trading fees, minimum deposits and other variables, traders can find the one – or ones – that suits them best. This, in turn, makes it easier for the average hobbyist to trade CFDs for things like the FTSE 100. Because CFDs don’t require investors to buy shares in the company, they are a more affordable, flexible way to trade the FTSE 100 and attempt to make a profit off those companies one believes are on the rise.

When One Company Moves, We All Move

The upshot of online trading is that it’s brought more money into the market. This, in turn, means the rise and fall of the FTSE 100 is even more significant. Again, because the value of the index and the companies in it can be used to determine the strength of the economy. By grouping the largest publicly traded companies into one index, it’s possible to assign an overall value to those listed. This value then becomes a marker for the overall economy.

Just consider some of the companies listed on the index: Associated British Foods Plc, AstraZeneca Plc, BAE Systems Plc, Barclays Plc. Even in this small selection of FTSE 100 companies, we’ve got food, medicine, air travel and banking.  All of these things are integral to modern life. Therefore, if the value of these companies is strong, it’s likely the economy is strong. Conversely, if these companies are struggling, the economy may well be struggling.

Even though economics is more complex than this, the FTSE 100 is at least one measure of economic value. This brings us back to the significance of traders putting so much stock in the index. By speculating on the FTSE 100’s movements, traders are essentially saying “we know the movement of the index is important”. Of course, traders are also looking to make a profit. However, the fact you can trade off of its movement shows just how important the FTSE 100 is – and, from that, just how important these particular businesses are as an indicator of the state of the British economy, which indeed affects us all.