What is the FTSE and the London Stock Exchange?

The Royal Exchange - LSE, UKStock exchanges have existed for hundreds of years and are the strongest financial indicators of the broad economic outlook for a specific market, country or region.

In recent times, these platform have ushered in economic booms as well as brought the world of global finance to near ruin. Although there are numerous stock exchanges across the globe, the London Stock Exchange and the FTSE (commonly pronounced ‘footsie’) represent some of the most largest and most influential in the world.

So, what exactly are the London Stock Exchange and the FTSE? Let us briefly examine both.

The London Stock Exchange

This market is often abbreviated simply as the LSE. As the name denotes, this exchange is based in the financial district of London.

The history of the London Stock Exchange can be traced back hundreds of years although the present-day structure only began to take shape in the post-war period, notably with the remarkable economic boom times of the late 1950′s. As of 2011, the estimated value of the LSE is over $3 trillion dollars, thus defining it as the third largest stock exchange in the world and the exchange with the highest market capitalisation in Europe.

Alternative Investment Market – AIM

The two basic segments are the LSE Main Market and the Alternative Investment Market (otherwise known as the AIM). The main market is comprised of over 1,300 globally recognised companies and is the highest regulated and most prestigious market on the exchange.

The AIM market caters to small and medium-sized companies in growth phases that need access to capital through public exposure. These two facets of the London Stock Exchange are carefully monitored by traders, as the “health” of an economy is often mirrored in market movements. Thus, forex traders can use these exchanges as a barometer to gauge future domestic currency fluctuations.

 

The FTSE

This acronym stands for the Financial Times Stock Exchange. This index was created in 1984 as a way to segment the top performing companies across the entire exchange.

The FTSE 100 represents the top 100 companies on the LSE with the highest market capitalisation. Likewise, the FTSE 250 includes the next 250 companies after the top 100 and the FTSE All-Share aggregates the 100, the 250 and a host of other smaller companies. Some common examples of large companies that trade on the FTSE 100 include:

  • British Petroleum (BP)
  • Rio Tinto
  • GlaxoSmithKline

These indices are excellent indicators of the current status of the domestic economy and therefore astute traders will monitor the FTSE closely on a daily basis. Investing in these larger companies through such vehicles as Exchange-traded Funds (ETF’s) can be a means to accrue a steady source of income over a predictable period of time in a bullish market.

The London Stock Exchange and specifically the FTSE are absolutely pivotal indicators of not only the economic status of the United Kingdom, but of the global marketplace itself. Therefore, forex traders need to keep a close eye on any movements, as currency prices can be directly affected by this large and powerful market.

››Also read about other macro economic factors affecting currencies