The FTSE 250 Index, often referred to as the UK 250 by spread betting and CFD trading firms, is a stock market index which tracks the largest 250 companies listed on the London Stock Exchange, after those in the FTSE 100.
What’s the difference between the FTSE 100 and 250?
While the FTSE 100 represents the biggest companies with shares traded in London, the 250 includes the group below the FTSE 100.
Many fund managers and investors feel the FTSE 250 Index is a better indicator of the performance of the UK market, because more of the companies included it in derive the bulk of their revenues from business done in the UK. The FTSE 100 Index (or UK 100) is composed of a much higher proportion of multi-nationals or large foreign firms that have chosen to list in London for capital raising purposes.
What does FTSE 250 mean?
The FTSE 250 is a capitalisation-weighted index: this means that companies are included based on the size of their market capitalisation, the value of the shares they have out there in the market. The companies included in the FTSE 250 will be the 101st to 350th largest companies listed on the London Stock Exchange.
The FTSE 250 also contains a large number of investment trusts. These are investment vehicles which issue shares on the stock market. They are managed like mutual funds, but investors buy into them by acquiring shares. At the time of writing, J.P.Morgan alone had six of its investment trusts as constituents of the FTSE 350.
Like the FTSE 100, the FTSE 250 has several foreign firms or multinationals with substantial interests outside the UK. It also frequently trades very closely (correlates) with the FTSE 100. However, as an index, it is regarded as a better reflection of UK share prices than the FTSE 100.
The FTSE 350 Index
The top 350 companies traded in London, namely the FTSE 100 and FTSE 250 combined, are represented by the FTSE 350 index.
Trading the FTSE 250
There are a number of ways in which investors can gain exposure to the FTSE 250 Index. Exchange Traded Funds or ETFs will track the performance of the index at a relatively low cost with the added benefit of paying dividends. This means that investors will enjoy the effects of compounding over the longer term.
For short term exposure to the FTSE 250, traders can use Contracts for Difference or CFDs to track the index. CFDs provide an opportunity for traders to make trades on a rising or falling index. UK investors may prefer to trade with a spread betting provider where any gains are tax free.