Forward Diary

Stocks & Shares - How the market works

Opening hours Trading on the London Stock Exchange begins just after 8am and runs through until 4.30pm, during which time orders are electronically submitted and matched on the SETs electronic order book. Immediately before and after the continuous trading period, there is an auction process which determines the opening and closing prices. Direct Market Access (DMA) allows private investors to participate in these auctions by entering orders from 7.50am until the scheduled opening and again from 4.30pm until the closing match – usually just after 4.35pm. Indices FTSE, an independent company jointly owned by the Financial Times and the London Stock Exchange, provides a wide range of indices to help investors track the performance of markets. In the UK, the main ones you will come across are: FTSE 100: Comprising the 100 most highly capitalised blue-chip companies FTSE 250: The next 250 companies by size FTSE SmallCap: Main market companies outside the FTSE 350 but above a certain size FTSE All-Share Index: An aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices, representing over 98% of UK market capitalisation FTSE Fledgling Index: Main market-listed companies too small to be included in the All-Share FTSE AIM Index Series: Tracking shares quoted on the Alternative Investment Market – includes AIM UK 50, AIM 100 and AIM All-Share indices. 
Constituents of the indices are reviewed periodically, which throws up opportunities for investors – particularly when there is a good chance a company will be promoted, say, from the FTSE 250 to the FTSE 100 or from the FTSE Fledgling index to the All-Share. Movement of stocks from AIM to the main list is another possible share-price booster. 
 To help investors compare apples and pears, quoted companies are divided into stock market sectors according to their main business activities. 
 The GICS (Global Industry Classification Standard) system works on four levels – 10 sectors followed by industry groups, industries and sub-industries.  
If that sounds complicated, don’t worry – the main level you need to be concerned with is that of the industry sector – for example, Media, Aerospace & Defence, Food Products, Metals & Mining and so on. The exception is where a sector is too large and diversified or too small to make comparison worthwhile. For example, the big Support Services sector is a real mixed bag, in which you can find yourself comparing a waste disposal company with one that provides management consultancy. Here it’s better to look at the sub-sector. Rather bizarrely, housebuilders are included under Household Goods, along with lavatory brush makers and the like. Here it’s better to drill down to Home Construction stocks. Sometimes companies will switch sector as a result of a change in business focus. This may provide opportunities for investors if the comparison with a fresh set of peers shows such a company in a better light.     This ‘How to’ guide is produced by Shares Magazine and is only for general information and use, and is not intended to address particular requirements. The value of investments and the income derived from them can go down as well as up. Past performance is not necessarily a guide to future performance. You should get professional financial advice before making any investment decisions.


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