There has been a lot of talk in the financial and business press recently about the FTSE100 index, which is the most widely traded in the world. The FTSE100, which refers to the 100 leading share indices, is an internationally recognized measure of the performance of major UK companies. As the UK’s most valuable market, the FTSE100 ensures that you have some of the best value stock investments available anywhere in the world. However, despite the obvious attraction of the FTSE100 to potential investors, there are also some major business risks associated with its highly volatile nature.
One of the key problems facing the FTSE100 is its vulnerability to sudden changes in the share prices. In the short term, this can create substantial profit opportunities but can also lead to large losses should the share prices fall following the announcement. In reality, these kinds of movements happen much more often than people think. For instance, the recent slowdown in Chinese stocks has led to a significant reduction in the price of Chinese stocks, but only a few short weeks later, when the news hits the stock markets, Chinese shares start shooting upwards once again.
This is because the central bank has implemented a fairly large amount of cash into the economy, which temporarily raises the share prices across the board. But, when the economy begins to recover from the effects of the stimulus, as it inevitably will, the bubble bursts and share prices begin to tumble downwards once again. Of course, if you own shares in the FTSE100 index you are at risk of losing your investment. But, the important point is that it doesn’t need to happen. The FTSE100 can provide you with great opportunities to earn profits even in bad times if you know how to make use of its range of factors.
There are two major reasons why the FTSE100 is such an excellent time to trade on the British stock market right now. First of all, the value of the pound is likely to continue to rise. This means that imported goods will become more expensive, which would normally lead to falling British exports. But, given the high value of the pound on the world market, this effect is offset by an increase in exports that would see Britain’s trade deficit reducing. It stands to reason that as inflation rises, the interest rates that would normally be associated with falling asset values will also begin to be pushed up, driving up the cost of borrowing money in the UK and creating a more buoyant lending market.
This has been mirrored in the US stock market, which is currently experiencing its own version of inflationary pressures. The Federal Reserve is raising interest rates, which are expected to cause mortgage lenders to increase their borrowing costs and push down the share prices of both the American and European economies. The FTSE100 index, on the other hand, has continued to rise since last year. This is mainly due to increased global sales of British companies, which account for around half of the FTSE100. This means that traders have seen the benefits of trading in the non-domestic markets while the British share prices are increasing in value. In fact, FTSE100 share prices have actually dropped slightly over the course of the past few months, mirroring the rising popularity of the BSE (UK) and other smaller UK Stock Exchanges.
But what are the implications of all of this? One of the most important things to note is that since there is a significant correlation between the price of British stocks and the value of the FTSE100 index, it follows that if the price of the index rises, so does the share prices. This suggests that traders could expect to see a further strengthening of the FTSE100, with its current average price per share. This is a positive for those investors who are looking for growth in their portfolios but are worried about inflation dampening the potential gains they can make. For those investors who bought shares during the initial period when the BSE was hot and the FTSE100 shares were at an all time high, however, the news could be quite negative and could result in further losses in their portfolios.