How to Invest in the FTSE 250 UK
In this guide, we will discuss how to Invest in the FTSE 250 UK. We’ll also analyse the factors you need to research before making your investment, along with some trading strategies.
How to Invest in the FTSE 250
- Choose a Broker to Invest in the FTSE 250 with: The first step involves researching and finding a trustworthy broker that will allow you to trade the FTSE 250.
- Open an Account: The next step involves opening an account with your chosen broker. Provide proof of ID (driver’s license or passport), proof of address (bank statement or utility bill), and some other personal details. This can all be completed online.
- Make a Deposit: Before investing, you will need to make a deposit. Most trading platforms allow you to deposit through credit/debit card, bank transfer, or e-wallet.
- Invest in FTSE 250 UK: Finally, once you have funded your account, it’s time to make your investment. Simply search for your chosen FTSE 250 stock in the search bar and enter the amount you’d like to invest (minimum position size is $50). Once completed, you can then repeat this step to add more FTSE 250 stocks to your portfolio to replicate the index more accurately.
FTSE 250 Investment Platforms
One of the most crucial elements of how to trade FTSE 250 UK is choosing an appropriate stock broker to make your investment with. With so many different brokers out there these days, all offering various features, it can be an overwhelming prospect trying to choose between them.
Not to worry – in the following section, we will discuss two of our favoured brokers and investment apps to trade the FTSE 250 with.
Fundamentals of the FTSE 250 Index
Once you have decided on a broker, it’s time to determine which method of investing in the FTSE 250 is most attractive for you. The section below discusses three of the most popular methods, analysing their pros and cons.
FTSE 250 Index Trading
One of the most efficient ways to gain exposure to the FTSE 250 index is through an index fund. How these index funds work is by attempting to replicate the performance of the FTSE 250 index, usually by creating a portfolio of all the companies it is made up of.
A popular method for how to trade FTSE 250 UK is through a regular index fund. There are many options to consider, with indices being offered by the likes of Vanguard and Hargreaves Lansdown, but they all essentially work the same way. To provide an example of potential returns, we can look at the HSBC FTSE 250 index, one of the most popular among UK-based investors. This index fund has returned an incredible 63.14% over the past year, highlighting the potential that these funds have.
Another avenue you could explore to gain exposure to the FTSE 250 index is through index futures. This type of asset allows you to speculate on the price of the FTSE 250 index at a future date, making them a potential investment for people who are looking for long-term investments. They allow you to buy/sell a position in the FTSE 250 index today, which will be settled at a specific future date, with your returns being based on the price stipulated on your futures contract and the actual price at the future date.
Finally, you can also day trade the FTSE 250 index if you wish. Although not incredibly common, it does offer an alternative for people who want to be more active in the market. Indices like the FTSE 250 tend to exhibit much lower volatility than equities due to the inherent diversification. If you decide to day trade this index, be prepared to look for quick 1-2% gains rather than more significant amounts.
FTSE 250 Tracker Funds
Another popular method is to invest in FTSE 250 tracker funds. These funds are similar to index funds because they attempt to track the performance of the underlying index. So, if you invested in a FTSE 250 tracker fund and the FTSE 250 index rose in price, your fund’s value would increase with it (taking into account any costs).
Some tracker funds are often low-cost and enable you to diversify your portfolio quickly and effectively. Furthermore, they are a more valuable investment than an ISA when it comes to potential returns; however, as always, you must weigh up the risk-to-reward aspects before deciding on an investment.
FTSE 250 ETFs & Stocks
The third option you have when investing in the FTSE 250 index is via ETFs or stocks. ETF stands for the exchange-traded fund and is essentially a fund created by a company that holds a selection of assets drawn from a specific sector; for example, there are ETFs for the tech sector, healthcare sector, and many more.
If ETFs don’t take your fancy, another option is to essentially create your own portfolio of FTSE 250 stocks to replicate the index’s performance. There are 150 companies in the index; so, you could invest a small amount in all 150 to create your very own FTSE 250 index portfolio, giving you exposure to the index.
Research FTSE 250 Investment
This section of the guide will discuss the various elements of investing in the FTSE 250 that you need to consider before taking the plunge.
Important features of the FTSE 250
When people think about investing in an index, most of the time, they immediately think of the FTSE 100 or the S&P 500. This is understandable – these indices are popular due to their consistently positive returns and reliability. For example, the S&P 500 index has only experienced a negative return in one of the last ten years!
However, the FTSE 250 is a investment alternative to the indices mentioned above. Firstly, the FTSE 250 is made up of smaller companies that are in the growing process and could potentially make it to the FTSE 100 in the future. Many experts in the financial space believe that this fact offers a chance for FTSE 250 investors to ‘get in at the ground floor’ and invest at attractive prices.
Finally, in terms of overall performance, the FTSE 250 is an attractive investment for people who are looking to generate above-average returns. Over the last 20 years, the FTSE 250 index has drastically outperformed other indices such as the FTSE 100 and the FTSE AllShare. However, due to the smaller nature of the companies included within it, the FTSE 250 tends to be more volatile than other indices, so be aware of the risks before investing.
How to Invest in FTSE 250 UK – Conclusion
To wrap up, the FTSE 250 is an attractive investment for people looking to gain exposure to the UK equity market. Although this index has a higher risk-level than the FTSE 100, the fact that it comprises smaller, more innovative firms with potential for growth means it can offer investors the chance to make returns.