How to trade the UK 100 index: Everything you need to know

The FTSE 100 is a share index of the 100 companies with the highest market capitalisation listed on the London Stock Exchange. In practice, it's home to the most significant UK-regulated businesses; giants like AstraZeneca, Shell, HSBC and BP. The UK 100 is a derivative product based on the FTSE 100.

If you want to trade on both the fortunes of the sixth-largest economy in the world and the global economy more generally, the UK 100 index is an excellent choice.

Whether you wish to trade CFDs (contract for differences) or indices, read on to learn what the UK 100 index is and how to trade it. Learn how it's calculated, what affects it, the benefits and drawbacks of trading it, and strategies that can help you get started on the front foot.

What are the UK 100 and FTSE 100 indices?

The UK 100 is a derivative financial security based on the FTSE 100 share index. It allows you to engage in activities like day trading and CFD trading without owning the stocks within the FTSE 100, and may also allow you far greater market exposure than the value of your investment.

The FTSE 100 is a share index of the top 100 companies on the London Stock Exchange (SLE). In July 2022, its net market capitalisation was £1.94 trillion. The top 10 listed companies comprised 49.34% of total market cap, and the largest constituent, AstraZeneca, made up 8.67% of the total.

Which companies are on the UK 100 index?

The companies on the UK 100 index are the top 100 shares by free-float-adjusted market capitalisation. Free-float differs from full market capitalisation in that it only counts stock that is free to trade and not closely held or restricted – such as stocks intended for board members.

If a company listed on the LSE but not on the FTSE 100 sees its value rise above rank 90 on the FTSE 100 index, it will take the lowest-ranked company's place. Conversely, if the market cap of a company drops below 110, it can be delisted from the FTSE 100 in the same way. This 90-110 rule is in place so that the companies listed on the index don't constantly change.

To be listed on the LSE, the main requirements for companies include being worth at least £700,000, having a minimum percentage of free-floating equity shares, and having three years of audited financial information.

Due to the UK-focused yet typically internationally operating nature of the index, the FTSE 100 incorporates a varied range of industries and sectors. Top companies include businesses in healthcare, energy, financial services, consumer products, telecoms and minerals.

What does the FTSE UK 100 index measure?

The FTSE 100 index measures the large-scale movements of the top 100 companies on the London Stock Exchange. As their values increase and decrease, the index does in kind.

However, since the largest companies on the index only represent around 8% of the total value, the index is largely immune from company or industry-focused drops or increases in share value, providing a more rounded, whole-economy expression of UK and global market sentiment.

How often does the UK FTSE 100 change?

Changes to the list of companies on the FTSE 100 index happen every quarter in March, June, September and December.

This sees FTSE Group analyse the market caps of all the companies on the LSE, ordering them, and then announcing which have joined or left the top 100 – the same is done for the FTSE 250 and other LSE indices.

In June 2022, for instance, Centrica and Johnson Matthey were added to the listing, while ITV and Royal Mail were deleted.

What's the history of the UK FTSE 100?

Launched on January 3rd, 1984, with an initial index level of 1,000 and value of around £160 billion, the FTSE 100 index quickly became the favoured indicator of the health of the UK economy and UK blue-chip business.

The FTSE 100 index was hit hard by the Black Monday crash in 1987 and in 1992 on Black Wednesday due to the UK's exit from the European Exchange Rate Mechanism. It rose precipitously during the dotcom boom of the late nineties, before dropping as the bubble burst and the economy reeled from the 9/11 attacks.

It recovered during the noughties, until 2008 when the Global Financial Crisis practically halved the index's value. Throughout the past decade, however, the UK 100 has bounced back healthily, recovering from 4,434 in 2008 to 7,384 in 2021.

As time has gone on, the companies in the FTSE 100 have changed, and today the index is highly international by nature – vastly different from the UK-focused index of the 80s and 90s.

What are the UK FTSE 100 index's trading hours?

The FTSE 100's official exchange hours are between 8:00 and 16:30 GMT, Monday to Friday, with futures trading open between 1:00 and 21:00, Monday to Friday.

On FXCM, you can trade the UK 100 every day between 00:00 and 20:00.

How is the FTSE 100 calculated?

The FTSE 100 is calculated by based on the total market capitalisation of constituent companies. Larger-cap companies have a greater influence on the score than smaller ones.

The exact formula used to calculate the FTSE 100 price index is the sum of the free-float-adjusted market values (capitalisations) of all 100 companies in the index, divided by the divisor.

When the FTSE 100 was launched the divisor was set at 1,000. However, over time, as the companies in the index and their values have changed, the divisor has been adjusted so that index scores over time remain comparable. The FTSE Group does this using the current-weighted Paasche Formula. Learn more using the FTSE Group's in-depth guide.

The UK 100 is essentially a copy of the FTSE 100, so is calculated by tracking the movements of the FTSE 100 and the companies in it.

What affects the FTSE 100?

The short and long-term movements in value of the FTSE 100 and UK 100 derivative are affected by several factors. Understanding them is key to being able to successfully trade the FTSE 100.

• Business performance – Given that the FTSE 100 is based on the market cap of the companies that comprise it, it is directly influenced by increases and decreases in their value. As companies perform better or worse and investors purchase or sell stock, the FTSE 100 is affected in kind.
• Significant events – From Black Monday through to the Global Financial crash, to terrorism, Brexit and the Covid-19 pandemic, events have always had an effect on the value of the FTSE 100.
  The swings in value are often tied to sociopolitical events in the UK; however, given the international significance of the UK economy, global events can have a large effect on FTSE 100 trading values, too.
• Monetary policy – As monetary policy changes, so does the FTSE 100.
  For instance, as interest rates rise, the price of company debt increases in lockstep, reducing profits and making companies less attractive to investors. As such, lower rates may equal higher FTSE 100 and UK 100 trading returns.
• Pound strength – All companies in the FTSE 100 are regulated by UK company law but most derive a significant amount of their revenue from overseas – FactSet statistics from 2019 show that the UK only represented 23% of total geographic revenue exposure.
  If the pound is weak, exports are cheaper, which can boost the performance of FTSE 100 companies with lots of overseas income. As a result, it can be worth keeping an eye on currency pairs like GBP/USD and EUR/GBP on the foreign exchange market when trading the UK 100.
• Thematic trends – So-called thematic trends affect the FTSE 100 in slower, less obvious ways. They include technological, political and other long-term changes that can impact the companies included in the index.

Analysis by wealth management company Schroders provides an interesting insight into these trends. Previous UK 100 companies have included UK-focused dairies, conglomerates, China clay extractors and kitchen retailers. It's difficult to imagine these being a part of today's index; now home to global-facing giants.

Is the FTSE 100 a good investment? What are the benefits?

In general, the FTSE 100 index is seen as a worthwhile investment – particularly for those trading derivatives like UK 100 CFDs.

Previous performance

The FTSE 100 has historically performed well but lower in comparison to small-cap, high-growth indices like the FTSE Fledgling and FTSE Small Cap. And while its recent history hasn't been quite as upwards charting as the likes of tech-heavy indexes like the NASDAQ 100 and S&P 500, it performed well during the 2000s and bounced back quickly following the 2008 financial crisis and the pandemic.

Good volatility

For CFD traders, long-term upwards momentum isn't a significant problem, as short- and mid-term volatility can equal greater returns. For this, the UK FTSE 100 index can be a smart choice. Companies listed on it have proven swayed by economic and political events such as the Brexit referendum, pandemic and war in Ukraine, making the index desirable for people trading on fundamentals.

Great trading volumes

Yahoo finance figures show that average FTSE 100 trading volumes were around 825 million in August 2022. That means that CFD spreads on the index are lower than indices with lower volumes and day-to-day price movements are less extreme.

High diversification

UK 100 shares are highly diversified – they don't represent a single sector or industry. That makes the index resistant to swings in the value of individual shares and sectors – a useful quality for all types of traders, especially those that employ risk-reducing hedging strategies.

Is FTSE 100 index trading right for everyone?

Trading the FTSE 100 index is an excellent choice for some but a poor one for others. Generally, it's a good idea if:

• You want to trade a highly diversified index as part of a hedging strategy.
• You're looking for a well-priced index: the FTSE 100 is, as of August 2022, generally regarded as being priced according to negative events like Brexit, meaning that it could potentially see good increases over the long term.
• You're looking to trade over the long term.
• You want to trade fundamentals on an index that's affected by UK and global socioeconomic events.
• You're looking for an index that does well when Pound Sterling falls – given FTSE 100 companies' global operations.

What are the key UK FTSE 100 trading strategies?

To get started the right way, it's important to use trading strategies whenever you are investing in the UK FTSE 100.

Fundamentals analysis

This type of FTSE 100 trading strategy is based on events – social, political, economic and so forth. Here, you trade the results of data releases such as GDP data, Bank of England interest rate rises, and employment, or trying to predict the results of elections, conflicts or the fortunes of the UK and global economies more generally.

Technical analysis

With technical analysis, you look out for buy and sell signals via a trading platform. There is a range of different metrics, tools and calculations that you can use here, including oscillator indicators like RSI (relative strength index), MACD (moving average convergence divergence), the ascending wedge, and moving average.

To learn more about specific FTSE 100 trading strategies like GBFalcon UK100 and Raptor for UK100, view our guide below.

Learn UK 100 strategies

How to start trading the FTSE 100 with FXCM today

Choose FXCM to trade CFDs on the UK 100 and get access to a host of valuable tools and resources, as well as excellent spreads and zero commissions. Get set up today:

1. Create an account – Create your free account or open a demo account to learn.
2. Download a platform – Choose MetaTrader 4 or Trading Station: read our guide to choosing.
3. Put funds in your account
4. Choose your first trade – After you've learned what CFD trading is and how to trade, it's time to trade. Start small so you can learn with lower risk to your funds.
5. Improve your skills – Explore FXCM's tools, webinars and a free online classroom to make better FTSE 100 trades. Explore our education hub.