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What is the FTSE Small Cap?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 27 October 2016
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The FTSE small cap index is an index related to some of the activity on the London Stock Exchange (LSE), one of the major national exchanges around the world. The equities traded on the LSE are bundled into several different indices that show investors what is going on with a range of publicly traded UK companies. The FTSE small cap index shows some of the smaller and less established companies and their collective value.

The FTSE small cap index is continually updated and looks like a stock chart. Traders can get up-to-the-minute pricing information on which to base decisions on investments in small-cap funds, small-cap stocks, or other opportunities. The FTSE small cap index represents several hundred of the smaller LSE stocks. Another index called the FTSE All Shares Index represents a greater basket of stocks.

FTSE is not an acronym for part of the LSE. It is an independent company that operates the various index tracking instances for the LSE. The FTSE has large financial backers, including large corporations and institutions in the UK. Investors should know why they should look at the FTSE small cap index and what it represents. Small-cap stocks are stocks with a certain size of market capitalization. Market capitalization is a total amount of outstanding shares. To get this consolation, multiply the number of outstanding shares with the current price of a single share.

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Different traders have different thresholds for calling stocks “small cap” stocks. Some consider small-cap stocks to be stocks of companies with total market capitalization that is less than one or two billion dollars. Looking at the FTSE small cap index will show what companies and what capitalization sizes are generally considered to be small-cap stocks on the London Stock exchange.

In looking at the movement of small-cap stocks through a small-cap stock index, traders should be aware of some of the risks of these smaller publicly traded stocks. As a rule, small-cap stocks are less likely to be required to meet stringent accounting standards. Many of them are less capitalized than some of the larger, more established companies. Many may have less liquidity than the large ‘value stocks’ or ‘blue-chip stocks’ that may have been known on the market for years, or even decades.

In the vast machinery of the London Stock exchange, the FTSE small cap index gives investors a glimpse into how the smaller companies are doing, and how funds or financial products that invest in these stocks may change over time. Looking at indexes like these as part of technical analysis for a stock or fund. Along with diversifying investments and tracking prices, using index information as a general barometer of price and value can be an asset to a beginner or a seasoned trader.

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