London’s stock market

30 Aug 2012 | Guides - Comment now

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London’s stock market

Although we talk about the London Stock Exchange (LSE) as a single stock market, it’s actually split into various different components, from the FTSE 100 to AIM. This guide explains what it all means.

There are more than 2,000 companies listed on the LSE, from global giants that everyone has heard of, like Vodafone and HSBC, to tiny businesses worth less than £1 million.

The total value of every company on the LSE is about £2 trillion. To put this into perspective, about four-fifths of it is accounted for by the largest 100 companies on the market.

It’s important for investors to remember that although the exchange is based in the UK, not all the companies on the market are British. Many have their headquarters abroad, or generate a large percentage of their revenues overseas.

The Main Market of the LSE breaks down into the following parts:

  • FTSE 100 (the 100 companies listed on the London Stock Exchange with the highest market capitalisation, i.e. the 100 biggest, e.g. RBS, Tesco, Rio Tinto, BP)
  • FTSE 250 (the 101st to the 350th largest companies, e.g. Domino’s Pizza, Taylor Wimpey, JD Wetherspoon, easyJet)
  • FTSE 350 (the combination of the FTSE 100 and 250)
  • FTSE SmallCap (the 351st to the 619th largest companies, e.g. Mothercare, Punch Taverns, Topps Tiles, Trinity Mirror)
  • FTSE All-Share (the combination of the FTSE 100, 250 and SmallCap)
  • FTSE Fledgling Index (approximately 200 listed companies that are smaller than those on the FTSE All-Share, e.g. HMV Group, Moss Bros Group, Thorntons, UK Coal)

To make matters a little more complicated, part of the London Stock Exchange is called the Alternative Investment Market (AIM). Also known as the junior market, AIM is used by small companies that want to float shares in a simpler regulatory environment than the Main Market. It is made up of:

  • FTSE AIM UK 50 (the largest 50 UK companies on AIM, e.g. ASOS, Majestic Wine, Prezzo)
  • FTSE AIM UK 100 (the largest 100 UK companies on AIM)
  • FTSE AIM All-Share (all the companies on AIM)

Promotions to and demotions from indices take place each year in March, June, September and December.

Companies cannot be promoted from AIM to the Main Market: they must formally apply to make the move. Many successful AIM companies prefer to stay on the junior market because of its ‘lighter-touch’ regulation – which is why there are some companies on AIM that are larger than those on the FTSE Fledgling.

You’ll hear people talking about large caps, mid caps and small caps. Cap is short for market capitalisation. Broadly speaking, large cap means the FTSE 100. Mid cap means the FTSE 250 and AIM 50. Small cap means anything smaller than these.

For more information, see the related guide, Large, mid and small caps.

Related topics: Dividends, Equities, Large caps, Mid caps, Share dealing, Small caps, UK equities

From What Investment Magazine

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