UK Stock Market Indices Fully Explained (FTSE 100, FTSE 250, AIM)

1) What is the UK INDEX?

UK stock market indices are benchmarks that track the performance of UK-listed companies. They’re often used as shorthand for how the UK market is doing, but the UK market has a unique feature: many of its largest companies earn significant revenue overseas. That means UK indices can behave differently from “UK economic news” alone.

The most followed benchmarks are:

• FTSE 100: largest UK-listed companies.
• FTSE 250: mid-sized UK-listed companies.
• AIM (Alternative Investment Market): smaller growth companies, often earlier-stage.

Together, they give a more complete picture of UK equities: global large caps (FTSE 100), more domestically sensitive mid-caps (FTSE 250), and smaller higher-risk companies (AIM).

2) What does it include and exclude?

FTSE 100

Includes the 100 largest companies listed on the London Stock Exchange (main market) by market cap and eligibility rules. Many constituents are multinationals (energy, mining, global consumer goods, pharma).

Excludes: most smaller firms and many early-stage companies, plus any company that doesn’t meet liquidity/free-float requirements.

FTSE 250

Includes the next 250 companies after the FTSE 100. These tend to be more UK-economy exposed (housebuilders, retailers, UK services, domestic banks and lenders).

Excludes: the very largest (in FTSE 100) and smaller firms below the 250 range, plus those failing eligibility.

AIM

A market segment for smaller companies with a different regulatory framework. AIM includes many growth businesses, some with lower liquidity and higher volatility.

Excludes: companies not listed on AIM, and firms that do not meet AIM rules or listing standards.

3) How it’s calculated (price-weighted vs market-cap-weighted, etc.)

FTSE indices are typically free-float market-cap weighted. This means:

• Bigger companies have bigger weights.
• Only shares available to public investors count (float adjustment).
• The index is periodically reviewed and rebalanced.

AIM itself is a market; there are indices that track AIM-listed companies, but the key concept is that AIM performance can be dominated by smaller, less liquid names and can be more sensitive to sentiment.

4) What moves the index day to day

Currency effects (GBP)

This is a defining driver for the UK market:

• When GBP weakens, overseas earnings translate into higher GBP profits for multinationals (often supportive for FTSE 100).
• When GBP strengthens, the translation tailwind can fade.

Commodities and global cycles

FTSE 100 has meaningful exposure to energy and mining. Moves in oil, gas, and metals can influence index performance even if UK domestic data is quiet.

UK rates, housing, and consumer demand

FTSE 250 often reacts more to:

• Bank of England rate expectations
• Mortgage rates and housing activity
• UK wage growth, inflation, and consumer spending

Global risk sentiment

UK equities are part of global portfolios. Big shifts in risk appetite can move FTSE indices regardless of local headlines.

5) Why people track it (benchmarking, sentiment, economy)

• Benchmarking UK equity exposure: Many funds measure UK performance using FTSE indices.
• Global vs domestic signal: FTSE 100 can reflect global earnings; FTSE 250 can reflect domestic sensitivity.
• Sector mix: The UK’s sector weighting differs from the US; this changes how the market reacts to rates and growth.
• Product tracking: ETFs and funds often track FTSE 100/250 benchmarks.

6) Common misconceptions

• “FTSE 100 = UK economy.” Not reliably; many firms earn globally.
• “FTSE 250 is always ‘safer’.” Mid-caps can be more cyclical and volatile.
• “AIM is just like the main market.” AIM can have different liquidity and risk characteristics.
• “UK stocks only move on UK news.” Global events and commodities can dominate.

7) Related Indices

• FTSE All-Share (broader UK market benchmark)
• FTSE SmallCap (smaller companies outside 100/250)
• Sector-focused lenses: UK banks, energy, mining-heavy performance

8) Quick glossary

• Free float: publicly tradable shares.
• Translation impact: FX changing reported earnings.
• Mid-cap: mid-sized firm category.
• Liquidity: ease of trading without moving price.
• Cyclical: performance linked closely to growth cycles.

Thanks for reading the MaximiseFinance guide on UK stock market indices, if you want to read the Indices Fully Explained guide in depth and how they work, please click below

Indices Fully Explained: What Stock Market Indices Are and How They Work