Learn with Penny
The UK stock market, explained like a friend would
The FTSE 100, the FTSE 250, AIM and the bits of the machinery nobody bothers to explain. Short lessons, everyday comparisons, and the honest parts included.
Start with the one-liners
- What is the stock market, really? — It's a marketplace where people buy and sell small slices of companies. That's it. No magic.
- What is the FTSE 100? — The 100 biggest companies listed in London — household names like Tesco, Shell, AstraZeneca and Unilever.
- What is the FTSE 250? — The next 250 companies down — big, established businesses, but not giants.
- What is AIM? — London's market for smaller, younger, growing companies. Lighter rules, bigger dreams.
- What is an index, and why do people track them? — An index is just a scoreboard — one number summing up how a whole group of companies did today.
- Why do companies join the stock market at all? — Mostly to raise money to grow — and to let early owners sell some of their slices.
- What moves an index up or down? — Company results, world events and interest rates, mostly — often all at once.
- The reshuffle — Four times a year, companies are promoted and relegated between the FTSE 100 and the FTSE 250.
- What about America? — The S&P 500 and the Nasdaq are America's two famous scoreboards — you'll hear them constantly.
The big picture
3-minute read
What is the stock market, really?
It's a marketplace where people buy and sell small slices of companies. That's it. No magic.
When people say “the stock market”, they picture shouting men and flashing screens. What's actually happening is far duller, and much easier to understand: someone owns a slice of a business and would rather have cash, someone else has cash and would rather own the slice. The market is simply the place where those two meet and agree a price.
In this country that place is mostly the London Stock Exchange. Nobody rings you, nobody picks you — you go through a broker, who does the buying and selling on your behalf.
A price on a screen is not a fact about a company. It's the last price two strangers agreed on. That's worth remembering on the days it moves a lot.
It's a giant farmers' market — except instead of buying vegetables, you're buying tiny pieces of businesses. Same stalls, same haggling, same days when everything looks dearer than last week.
3-minute read
What is an index, and why do people track them?
An index is just a scoreboard — one number summing up how a whole group of companies did today.
When the news says “the FTSE rose 1%”, that's all it means: add up that group of companies, weight the big ones more heavily, compare with yesterday. One number.
Indexes exist because nobody can hold 100 companies in their head. They're a shorthand — useful for saying “was it a good day or a bad day for this group”, and not much else.
They also give people something to measure against. If someone charges you to pick shares, the fair question is whether they did better than simply owning the whole list.
Think of the fruit bowl. This is why index funds exist — instead of picking one company, people buy a tiny slice of all of them. The whole fruit bowl in one go. Whether that suits you is your decision, not mine.
The London indexes
4-minute read
What is the FTSE 100?
The 100 biggest companies listed in London — household names like Tesco, Shell, AstraZeneca and Unilever.
It's said “footsie”, and it's the number the news reads out at the end of the day. It's a list of the 100 largest companies listed on the London Stock Exchange, measured by what the whole company is worth.
Bigger companies count for more in that number. So a very large company having a bad morning can drag the whole scoreboard down, even if most of the other 99 had a perfectly nice day.
The bit nobody tells you
Here's the surprise: the FTSE 100 isn't really a bet on Britain. Most of these giants earn the majority of their money abroad — oil, mining, drugs, banks, tobacco, consumer brands sold worldwide. So the FTSE 100 mostly reflects the world economy, not just the UK's. It's also why, when the pound falls, the FTSE 100 often rises: those overseas earnings are worth more once they're converted back into pounds.
The Premier League of the stock market — the biggest clubs, but full of international players who spend most of the season away from home.
3-minute read
What is the FTSE 250?
The next 250 companies down — big, established businesses, but not giants.
Take the 100 biggest off the top, and the FTSE 250 is the 250 that come next. These are still serious companies — housebuilders, retailers, engineers, pubs, transport — just smaller than the household giants.
Because they're smaller, the number tends to move about more than the FTSE 100 does. Not better or worse; just livelier.
The bit nobody tells you
The FTSE 250 is much more “British”. These companies mostly earn their money here at home, so this scoreboard tells you more about how the UK economy is actually doing than the FTSE 100 does.
The Championship — serious, established clubs, some of them heading for promotion. And that's real: companies genuinely move up and down between the two leagues at the regular reshuffles.
4-minute read
What is AIM?
London's market for smaller, younger, growing companies. Lighter rules, bigger dreams.
AIM stands for the Alternative Investment Market. It's run by the London Stock Exchange, but the rules for joining and for reporting are lighter than the main market. That's deliberate: it lets smaller companies raise money without the cost and paperwork the giants can afford.
Some well-known businesses grew up on AIM and later moved to the main market. Many others quietly disappeared.
Penny being honest
Honest bit: AIM companies can grow fast — but they fail far more often too. Prices swing harder, information can be thinner, fewer people are trading so it can be harder to sell, and some of these businesses never make a profit at all. If the FTSE 100 is the Premier League, AIM is non-league football: exciting, unpredictable, and definitely not where a nervous beginner should start.
Good to know
2-minute read
Why do companies join the stock market at all?
Mostly to raise money to grow — and to let early owners sell some of their slices.
A company that wants to build factories, buy a rival or pay off debt needs money. It can borrow it, or it can sell slices of itself to the public. Selling slices means no loan to repay, but it means sharing the profits and answering to shareholders forever after.
The other half of the story: the founders, families and early backers who own it often want some of their money out. Listing lets them sell part of their stake to people like us.
That second reason is worth holding on to. When something floats on the market, somebody has decided this is a good moment to sell.
3-minute read
What moves an index up or down?
Company results, world events and interest rates, mostly — often all at once.
Company results: a supermarket says sales are better than expected, its shares rise, and because it's part of the list, the scoreboard nudges up.
World events: a war, a strike, a shortage. Oil companies are a big chunk of the FTSE 100, so a jump in the oil price shows up on the London scoreboard quickly.
Interest rates: when the Bank of England raises rates, borrowing costs more, savings pay more, and people pay less for company profits arriving years from now. Housebuilders and other borrowers usually feel it first.
The pound: because so much FTSE 100 income arrives in dollars, a weaker pound makes those earnings translate into more pounds.
2-minute read
The reshuffle
Four times a year, companies are promoted and relegated between the FTSE 100 and the FTSE 250.
FTSE Russell, the company that runs these lists, reviews them quarterly — March, June, September and December. Companies that have grown move up; companies that have shrunk move down. It's published in advance and it isn't a judgement on anyone's character.
It matters slightly because index funds have to follow the list: when a company joins, those funds must buy it, and when it leaves, they must sell.
Promotion and relegation, exactly like the football leagues — just with fewer fireworks.
3-minute read
What about America?
The S&P 500 and the Nasdaq are America's two famous scoreboards — you'll hear them constantly.
The S&P 500 is a list of 500 large US companies — the American cousin of the FTSE 100, but much bigger and with far more technology in it.
The Nasdaq is both a stock exchange and an index. When the news says “the Nasdaq”, they usually mean the Nasdaq 100: 100 of the largest companies trading there, heavily weighted towards technology.
You'll hear these names on the UK news because American markets are enormous, and because they open in our afternoon — so a bad mood over there often shows up here before teatime.
One thing to know: buying American shares means your money is also riding on the dollar-to-pound rate, which moves on its own.
Where next
Every word in these lessons is in the decoder too, one sentence each.
Education only. Nothing here is a recommendation to buy anything, and nobody — me included — knows which of these lists will do better than another.