FTSE UK Index

Day trading FTSE shares and stocksLaunched in 1984, the entire FTSE (Financial Times Stock Exchange) consists of in excess of six hundred companies, that make up approximately 98% of UK market capitalisation. The ‘footsie’ is a term that most people have heard of, but relatively few understand it’s intricacies and significance. This page will break down its history, purpose, and implications. It will then walk you through becoming a FTSE 100 & 250 day trader, covering strategy, brokers, top tips, and more.

What Is The FTSE?

A Brief History

The ‘footsie’ is the primary stock exchange in the UK and remains today the largest in Europe. Its humble origins date back to 1773, but the regional exchanges merged in 1973 to become the Stock Exchange of Great Britain and Ireland. This was later rebranded the LSE, which stands for the London Stock Exchange. Today’s name comes from the merging of initials from the Financial Times and London Stock Exchange, both of whom used to own 50% of the index.

The London Stock Exchange (LSE) is the most globally diverse of all stock exchanges, containing 350 companies from over 50 countries. During market hours, it is an elite source of equity-market liquidity and serves as a benchmark for prices and market data across Europe.

FTSE Indexes

FTSE 100

If you’re looking for shares and stocks to buy, you head to the FTSE 100. Today it is seen as the dominant index, containing the 100 UK stocks with the highest market capitalisation (number of shares issued multiplied by the price of shares). These are also known as ‘blue chips.’

It contains some of the most famous companies in the world. Currently, the top 50 include oil and energy companies such as Shell and BP, plus Lloyds bank, Vodafone, and Glencore. Huge mining and property businesses also feature in the top 100.

Other Indexes

Although the FTSE 100 represents approximately 81% of LSE market capitalisation, it’s also worth noting there are other indices. The other two main lists are the:

  • FTSE 250 – This is comprised of the next 250 companies ranked by market capitalisation. Although less known, this still includes some big names, such as Weatherspoon and JD Sport. The FTSE 250 is often thought of as a better indicator of UK economic performance than the FTSE 100, as a smaller proportion of the listed companies are international.
  • FTSE 350 – This is simply the aggregation of the FTSE 100 and 250.

There also exists three other indexes worth understanding. These are the:

  • FTSE SmallCap – This is comprised of small market capitalisation companies, ranking from 351st to 619th largest listed companies on the main LSE market.
  • FTSE Aim All-Share – Originally known as the FTSE Actuaries All Share Index, this capitalisation-weighted index, consists of approximately 600 of over 2,000 companies that are traded on the LSE. It is maintained by FTSE Russel.
  • FTSE Fledgling – This is formed of companies listed on the main LSE market, which qualify for inclusion in the FTSE UK series, but remain too small to be included in the FTSE All-Share index.

Component companies must meet the stringent requirements laid out by the FTSE group. This includes having a full listing on the London Stock Exchange with a sterling or euro denominated price on the Stock Exchange Electronic Trading Service. They must also meet tests on nationality, free float, plus liquidity.

The FTSE is made up of a significant number of index series. Each focuses on varying aspects and are based on different sectors, including those that are geared towards certain companies. You will also find some are alternatively weighted, plus those that concentrate on fixed income.

What Is The FTSE Used For?

What is the meaning and aim of the FTSE? At a glance, the FTSE 100 list offers a snapshot of UK stock market performance.  In theory, the FTSE also acts as a gauge for overall UK economic health. However, since so many of the featured companies are international in nature with operations slung across the globe, whether this is entirely true isn’t clear.

It is often a relatively accurate reflection of economic and international events. This is evidenced by the fact that the greatest one-day percentage drop was on the 20th October 1987 at 12.22%, following ‘Black Monday’. So, the FTSE indexes will plummet in response to other failing markets.

Aside from its primary use, it’s also used by thousands of individuals every day to try and make a profit from the price fluctuations in the listed shares. This is because if you track the FTSE over time you can get a feel for changes in market sentiment.

You’ve probably heard the phrase the index is ‘up’ or ‘down’. The former is when more people are buying than selling, leading to a rise in share prices. If the index slumps, people are dumping their shares.

How you can start investing in the FTSE to generate earnings will be detailed further below.

How It Works

Weighting

Put simply, share prices are weighted by market capitalisation. This means smaller companies will have less of an impact on an index.

Part of the basic formula is concerned with the free float adjustment factor. This represents the percentage of all issues shares that are accessible to trade. That factor will then be rounded up to the nearest multiple of 5%.

To find the free float capitalisation of a company, you will first have to calculate its market capitalisation (number of shares x share price). Once you have that, you multiply by its free-float factor.

This means free-float capitalisation will not include restricted stocks. Those held by company insiders, for example.

FTSE Changes

The FTSE listed companies are ranked by a subsidiary of the London Stock Exchange Group. The company list is best described as a football league. Those that decrease in market capitalisation will be relegated, whilst the high performers will be promoted.

Those changes are made each quarter. Normally, the review dates are the Wednesday following the first Friday in March, June, September, and December. Changes that are made will be based on company valuations after the close of business the night before reviews will be conducted. The panel that makes the changes consist of independent market experts and announces new entrants.

To establish those changes a banding system is used. You must be in the top 90 to be eligible for promotion. To be relegated, you must have dropped to 111th.

Mergers and takeovers are often big reasons behind position moves. Growth and trends in global markets also have an influence on FTSE risers and fallers.

Performance can be seen in real time, with daily updates, plus live updates every 15 seconds during trading hours. The opening time is 08:00 (UK Local time – GMT in winter, BST in summer) and the closing time, 16:30. The closing value is then taken at 16:35.

Points To Remember

Below some of the most important FTSE facts and stats have been highlighted and explained.

  • When the index began on the 3rd of January 1984, the base level was just 1000.
  • Records show the highest ever closing value was 7,687.77, which was reached on the 29th December 2017.
  • The new highest intra-day value was 7,697.62, which was also reached on the 29th December 2017.
    Previous peaks were seen on the final day of 1999, amidst the dot-com boom, plus April 2015, when the index hit 7103.98.
  • Since the FTSE opening, reports show the lowest point of 3529.86 was recorded on the 5th March 2009.
  • When the FTSE is quoted as ‘up’ or ‘down’, this is against the previous day’s close.
  • The figure you will see on the evening news at the end of today is the closing value of the FTSE.
  • A dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company’s total annual dividend payments divided by its market capitalisation. The highest FTSE dividend yields can help investors determine where to put their capital.

Performance Points

It is worth knowing that if sterling falls, many listed companies will actually see their profits increase. This is because they receive more pounds when revenues denominated in foreign currencies are transferred into sterling.

As of early 2018, the index currently rests around all-time highs. This is because global equity (stock) prices have been pushed higher, firstly by low-interest rates. However, also because of quantitive easing measures, which is when a central bank buys securities from the government or market to lower interest rates, increasing the money supply.

Impact of Brexit

Interestingly, Brexit has meant the big companies and movers listed in the FTSE 100 are even more global because they need to rely less on the UK domestic economy.

As such, Rentokil Initial was one of the biggest 250 risers to be promoted to the FTSE 100, benefiting from the drop in the pound. On the flip side, domestic-based householder Berkely became one of the recent FTSE losers and was relegated.

Biggest Players

Some of the largest FTSE businesses dominate the index. Shell, for example, currently has a market capitalisation of over 200 million. You will also find banks towards the top of the list, such as HSBC, with over 153 million. Other top contenders include British American Tobacco with around 113 million and BP with approximately 102 million.

These are currently the four constituents with over 100 million in market capitalisation. The combined size of the top four is larger than nearly the rest of the list combined. This is the effect of having a market capitalisation-weighted system.

How To Start Day Trading On The FTSE

If you want to start day trading the FTSE 100 or 250 to make money, you will need to follow two important steps.

1. Choose A Broker

The broker you select will be your gateway to the market. They will facilitate your trades and their trading platform is where you will spend numerous hours a day. However, with so many brokers out there, what should you look for?

  • Price – How competitive are their commission costs? What are their margin rates? Do they have a transparent fee structure? If you are making a high volume of trades a day, expensive broker fees will quickly add up and cut into your profits.
  • Trading platform – Is their platform straightforward to use and equipped with all the index graphs, charts, and tools you need for technical analysis? How fast are their execution speeds? In day trading, every second counts.
  • Customer service – Any glitch could cost you serious time and money. So, do they offer fast and reliable customer support? Is it via the phone or online web chat? Some brokers now promise 24/7 support, in a number of languages.

The broker you select is one of the most important investment decisions you will make. The FTSE is a highly competitive marketplace, so do your homework and check reviews first.

For more guidance, plus comparisons and recommendations, see our brokers list.

2. Choose A FTSE Stock

With such a competitive marketplace at your fingertips, choosing the right stock to day trade will make all the difference to your final profits. Having said that, there are two main attributes to look for in a stock, volume, and volatility. Both will enable you to enter and exit positions quickly, whilst offering the greatest opportunity to turn a profit.

Volume

This is simply the total number of shares being traded within a certain period. Each transaction will increase the total volume. So, if only thirty transactions take place today, the volume for the day would be thirty.

Volume is an effective quality factor, that gives weight to market moves. If you see a spike in your FTSE 100 live chart, the validity of the move can be gauged by the volume within that period. The greater the volume, the more substantial the move.

Applying Volume

The more capital you have, the more you need FTSE stocks with substantial volumes. Your broker may offer you a list of the top 20-25 stocks. However, expanding that search with a thorough stock screener could make all the difference.

Below are three popular alternatives.

  • Bar Chart
  • TheStreet
  • Yahoo Finance Unusual Volume

All will collate essential information, including volume, volatility, stock price, and other points of interest.

Whether you’re looking at the FTSE now, today, or tomorrow, you will need an effective FTSE 100 and 250 live index tracker and screener. So, it’s worth shopping around now to save yourself an expensive headache later.

Volatility

When you load up your live FTSE index in the morning, you should also look for volatility in your stocks. This is the amount of risk and unpredictability in the size of changes in a security’s value. High volatility suggests the value could be spread over a large range of values. This could be an indicator that the price of the stock could significantly fluctuate in a short period.

This provides the switched on day trader with the opportunity to turn a profit. Stocks with lower volatility will remain steady, offering less profit potential.

Applying Volatility

An effective way of establishing the volatility of a potential FTSE stock is to use beta. Beta predicts the total volatility of a stock’s returns against the returns of a suitable benchmark. For example, a stock with a beta value of 1.1 has moved around 110% for every 100% in the corresponding benchmark (contingent on price level). Likewise, a stock with a beta of just .7 has shifted just 70% for every 100% in the benchmark index.

Being armed with information on a stock’s volume and volatility, allows you to validate a price move and screen a stock for profit potential.

Strategy

Trading stocks on the FTSE have been around long before futures, options, and bitcoin trading. However, that doesn’t necessarily make it straightforward. So, once you have your broker, you will still require an effective strategy to turn a profit.

The best strategies analyse market data using charts and patterns. Quite simply, with historical price data to hand, you can better predict future price movements.

Technical analysis is a mixture of art and science, and it is a craft that requires considerable patience and experience to master.

Set Up

For the best chances of success, you need to be up bright and early. Experienced day traders like to be sat at their screen around 30 minutes before the FTSE opens at 08:00 (UK local time). This allows you time to prepare, by doing the following:

1. Check The News

Look to see if there have been any news events overnight that will impact today’s market, and if so, which stocks in particular. You can then formulate trade setups that present themselves in the aftermath of major news events.

Terrorist incidents, plus political and economic stories can all influence the market, particularly when the market opens.

2. Context

You can use any number of FTSE charts, from 1, 2, and 5 minutes, to 2 and 4-hour charts. All will allow you to assess price action. However, using hour timeframes is often an effective way to assess market sentiment.

With longer timeframes, you’re in a better position to identify where a current stock is in a trend. You can then look for momentum trades, pullback reversals, or you can trade in trend channels and make reversal trades from the top of a trend.

It can often be helpful to plot horizontal lines to pencil in your judgement of the top and bottom of the trending range.

3. 5-Minute Chart Preparation

Once you have set up the above, you can then concentrate on your 5-minute timeframe chart. Placing four horizontal support and resistance lines on your 5-minute chart is often a good place to start. These can be positioned at the four most significant levels of the last trading session, the opening and close price, plus the daily low and high. These levels often play a significant role the next day.

You can then use a MACD indicator or Stochastic to gauge whether the momentum is bullish or bearish. Having the 8, 20 and 90 EMAs on your chart can also prove useful.

4. Making Trades

You have now setup your charts, giving you the context and crucial foundations for the day ahead. You have identified what to look for in terms of possible reversals, pullbacks, plus trend continuation trends.

The next thing you need to do is watch those 5-minute candlesticks form. You are looking for telling patterns that will emerge throughout the day. FTSE price action analysis is a vital component of successful trading.

The majority of your day will now be noting what happens at your key levels. The pin bar candlesticks, inside and outside bars, plus traps will be the events in your trading day that offer the most opportunity.

You will have just a few seconds to confirm whether the candlestick pattern reinforces your trend-lines, support and resistance levels. For example, is a head and shoulders pattern confirmed by a current price action?

As soon as the market confirms your signal, you can then enter a trade. You will need to use a risk management strategy to decide upon the size of your trade. In general, trading no more than 1-2% of your account balance on a single trade is advised.

This is just one way to go about day trading with the FTSE. Many traders prefer using longer time frames. You can fiddle around and try a few to see what system paints you the clearest picture.

10 & 25 Exponential Moving Averages

As a beginner looking to start day trading on the FTSE, using 10 and 25 exponential moving averages on a 30-minute time frame is a good place to start. This is a system that is also effective in other markets, including the S&P, Dax 30, and Dow Jones.

Once 10 crosses the 25, you will get an alert for the trade. Then you need to identify when the price hits the 25 EMA. If the 10 comes up and through the 25, you need to look for a long. However, if the 10 drops down through the 25, you should look for a short.

Using a fast and slow moving average in this strategy, you will reduce whipsaw price action. This will help you enter trades with weight to them. This straightforward strategy is best for when you are at your desk analysing the price action yourself.

For further guidance, example charts, patterns, and strategies, see our stocks and strategy pages.

FTSE Tips

News

Although mentioned above, this top tip deserves emphasising. Reading the latest news is essential, as highlighted by successful FTSE day trader David Rogerson. You need to be able to anticipate market moves and news stories often trigger significant shifts.

Today you can find FTSE live news reports and updates from a variety of sources. Yahoo and Bloomberg are just two popular sources. FTSE news websites can offer 2018 forecasts and predictions. They will often collate historical price data, share values, sector positions, plus long-term overviews. Not to mention they will usually provide the FTSE open and close of the previous day.

All will help you get a feel for who the FTSE gainers and fallers will be.

Educational Resources

As hugely successful trader Paul Tudor Jones pointed out, “Intellectual capital will always trump financial capital.” You must utilise the multitude of resources out there. These include:

  • Forums & chat rooms – You can brainstorm trading ideas and quiz experienced traders on all share index charts and funds, for example.
  • Online courses & video tutorials – They can teach you everything, from how to execute trades to making your own FTSE 100 forecasts.
  • Books & ebooks – You can find books on all things FTSE related. They can cover quarterly reviews, analysis of the last 12 months, new listings, understanding option prices, the outlook for 2018, and more.
  • PDFs – These could help you better interpret price history.
  • Charts – You can find all share fact sheets, with yields, constituents, and trackers.

It is also worth exploring the huge number of FTSE focussed websites out there. Whether you are looking for last week and last 12 month reviews, or next week and future FTSE predictions, there are numerous sites who have already done the heavy lifting for you. You can just glean the important information from a summary. Some will even offer 5 and 10-year predictions.

Automation

Once you’ve mastered an effective FTSE trading strategy, you may want to consider turning to trading automation. These algorithms and FTSE 100 day trading robots will execute trades on your behalf, following pre-determined criteria.

This will allow you to make a higher volume of trades across more FTSE indexes than you would be able to manually. All of this could lead to a significant increase in your end of day profits.

Journals

Although overlooked, keeping a trading journal is a wise move. You can use an excel spreadsheet or specialist software. All you need to do is keep a note of the following:

  • Price
  • Entry & exit position
  • Purchase & sell date & time
  • Reason for making the trade

With this information to hand, you’ll find it far easier to analyse your recent trading performance. This will allow you to rectify mistakes and improve your strategy. Without a trading journal it could be many more months before you identify why and where you are going wrong.

Final Word

FTSE 350 predictions and rankings will continue to change. That change offers a snapshot of UK and international economic performance. For the switched on day trader, these indices and markets offer a tremendous opportunity to profit from the price fluctuations seen every trading day. However, if you want to join the FTSE winners, sitting on vast funds, you will need to follow the tips and strategy advice listed above, plus utilise the numerous resources available.