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Trading the FTSE 250

The FTSE 250, short for the Financial Times Stock Exchange 250 Index, is another key stock market index in the United Kingdom. It represents the performance of the next 250 largest companies listed on the London Stock Exchange (LSE) after the top 100, based on market capitalization. Established in 1992, the FTSE 250 is managed by FTSE Russell, a subsidiary of the London Stock Exchange Group.

The FTSE 250 is often considered a broader and more domestically focused index than the FTSE 100, as it includes mid-cap companies that are typically more tied to the UK’s domestic economy. These companies often have a more significant impact on the nation’s economic activities, providing investors with insights into the overall health of the UK’s business environment.

Similar to the FTSE 100, the FTSE 250 is a market-capitalization-weighted index, with larger companies having a greater influence on its movements. Investors and analysts use the FTSE 250 to assess the performance of medium-sized companies and gain a more comprehensive view of the UK stock market beyond the larger multinational corporations featured in the FTSE 100. The index is widely monitored for indications of economic trends, investment opportunities, and market sentiment.

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.

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.

There is no official FTSE 350 index. Investors will typically combine the FTSE 100 and FTSE 250 indexes in order to correlate a FTSE 350 index.

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.

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