The Stock Market
The main stock market in the UK is at the London Stock Exchange. This is the forum where government bonds, shares in publicly listed companies and other assets are bought and sold. Although it’s common to hear talk of ‘the market’ as though it were a physical entity, this hasn’t been the case since the so-called Big Bang of October 27, 1986 and the sudden deregulation of the financial markets. After that date the London Stock Exchange moved to new premises in Paternoster Square, and deals were no longer conducted in person on the trading floor.
Stock Market or Stock Exchange?
These terms are used semi-interchangeably, but there’s an important difference between them. Think of the stock exchange as a mechanism: it provides the means by which stocks and shares can be traded in the market. In contrast, the market consists of the companies which list shares for investors to buy.
The London Stock Exchange offers markets to suit different requirements: for the biggest there’s the Main Market, and for others there are subsidiary markets such as the Alternative Investment Market (or AIM). Like other subsidiary markets, the AIM has a less rigid regulatory framework than the Main Market, and was founded with smaller companies in mind.
Purpose of the Stock Market
The UK stock market exists so that companies may raise equity for expansion by selling stocks and shares. Because the inherent worth of a company is tricky to determine objectively, such an investment may represent good or bad value. It’s up to the investor to use market data and their own judgement to make trading decisions.
Stock Market Indices
Stock market indices are an important source of such investment data. Different sections of the stock market—such as those operating in innovative sectors, or companies characterised as ‘alternative’ investments--tend to behave differently. So that statistics are better able to match reality, the UK stock market is described by a number of separate indices, each one summarising the performance of a particular sector.
By far the most famous UK stock market index is the FTSE (pronounced “Footsie”) 100, which tracks the value of the largest 100 companies. In fact, all of the best-known UK indices are administered by the FTSE group, including the FTSE AIM UK 50 Index, launched in 2005 to include the largest 50 companies on the Alternative Investment Market (or AIM).
Routes to Investment
Becoming an investor is surprisingly straightforward. If you’re interested in trading on the UK stock market, you have two options. The more hands-on approach is to make a direct investment (albeit through a third-party stockbroker): you’ll then own shares in a particular company of your choice.
But by far the more common approach is to invest indirectly through a fund or investment trust. Indirect investment spreads financial risk across a large number of companies, usually in sectors, or sometimes according to themes, you specify beforehand. Opt for this service and you’ll also be allocated a professional fund manager to make trading decisions on your behalf.