If you are looking for a great alternative to the FTSE 100, which can potentially net you more significant returns, investing in the FTSE 250 might be a smart move.
In this guide, we will discuss How to Invest in FTSE 250 UK. We’ll also analyse the factors you need to consider before making your investment, along with some of the most effective trading strategies to maximise your return.
- 1 How to Invest in FTSE 250 Quick Tutorial
- 2 Step 1: Choose a FTSE 250 Investment Platform
- 3 Step 2: Choose How You Want to Invest in the FTSE 250
- 4 Step 3: Research FTSE 250 Investment
- 5 Step 4: How to Invest in FTSE 250 on eToro
- 6 How to Invest in FTSE 250 UK – Conclusion
- 7 eToro – Invest in FTSE 250 UK – 100% Commission-Free
- 8 FAQs
How to Invest in FTSE 250 Quick Tutorial
If you’re wondering how to invest in FTSE 250 UK, look no further. By following the four quick steps below, you will be set up and ready to invest in as little as 10 minutes!
- 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. We recommend using eToro, as they are an FCA-regulated broker and will enable you to trade with 0% commissions.
- Open an Account: The next step involves opening an account with eToro. This process is quick and easy – all you need to do is 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. With eToro, you can 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.
After completing these steps, you are now officially invested in the stocks that make up the FTSE 250 index – all without paying any commissions!
Step 1: Choose a FTSE 250 Investment Platform
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. We will touch on the benefits of using both and help you to decide which is best for you.
1. eToro – Overall Best Platform to Invest In FTSE 250 UK (FCA Regulated)
Our favoured broker for investing in the FTSE 250 is eToro. eToro is one of the world’s leading brokerages, with over 20 million users worldwide. Known for its excellent product range where you can buy shares, commodities, ETFs, and more, eToro is the favoured broker of both retail and professional traders across the globe.
One of the best features about eToro is their 0% commission structure. This means that you can buy shares in the companies included in the FTSE 250 index without paying a penny in commissions. Whether you are creating a portfolio of just a few stocks or all of the companies that make up the FTSE 250 index, the fees for doing so will still be zero. This is an attractive proposition for investors looking to trade actively and would rack up hefty commissions by using other brokers for their trading.
What’s more, eToro let you invest in FTSE 250 stocks for as little as $50 (approximately £36), meaning you don’t have to invest a huge amount of money right off the bat. For example, you can invest in Greggs, one of the most popular FTSE 250 stocks, with small stakes initially and then gradually begin upping your exposure as time goes on.
eToro is also regulated by the FCA, meaning the strictest guidelines are in place to ensure your money is protected and you can trade safely. With a minimum deposit of only $200, dropping down to $50 after your first deposit, the eToro platform is accessible to many people. Finally, users can make this deposit through various methods, such as credit/debit card, bank transfer, or e-wallet.
67% of retail investor accounts lose money when trading CFDs with this provider.
2. Capital.com – CFD Broker That Offers FTSE 250 Trading with 0% Commission
If eToro doesn’t take your fancy, another broker that we would recommend to investors is Capital.com. Capital.com is a CFD broker that operates within the UK and has over 780,000 active users. Also, they are regulated by the FCA, which protects your capital, allowing you to invest securely.
Capital.com operates as a CFD broker, meaning you do not actually own the asset – instead, you own a contract based on the underlying asset. This contract’s price is based on the asset’s price fluctuations and pays out the difference between what you open your position at and what you close your position at.
CFD trading is a great way to speculate on various securities, including the stocks that make up the FTSE 250 index. For example, you could invest in a CFD based on a FTSE 250 stock such as Aston Martin, and then build up a portfolio of more FTSE 250 stocks as you go along. What’s more, each investment you make with Capital.com is completely commission-free! Instead, Capital.com make their money through the spread, which is the difference between the bid and ask prices. Usually, this spread is minimal, so you can rest assured that equity investing with Capital.com will never cost you a considerable amount in fees.
Furthermore, you can deposit as little as £20 at a time through various methods such as credit/debit card, wire transfer, Skrill, ApplePay, Giropay, and more. Finally, Capital.com even offer leverage on their investment platform, offering ratios of up to 1:30. This provides investors with the opportunity to boost their potential returns from their investments.
71.2% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider.
Step 2: Choose How You Want to Invest in the FTSE 250
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. These funds are great for investors who do not have the time or expertise to trade actively and instead desire a passive investment approach. 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.
The most popular method 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 an excellent 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).
The best 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 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.
Although eToro does not offer an ETF specifically for the FTSE 250 (similar to most brokers), they do offer nearly 250 other ETFs that can be a great addition to your portfolio. So, for example, if you invested in a FTSE 250 tracker fund, you could also place some money in an S&P 500 ETF with eToro to gain exposure to the US equity market. What’s more, with eToro, you can invest as little as $50 in ETFs, and you don’t have to pay any commission!
If ETFs don’t take your fancy, another great 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. Furthermore, eToro offers the vast majority of FTSE 250 stocks, allowing you to begin stock trading many equities and create a comprehensive portfolio – all without having to pay a penny in commission!
Step 3: 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. Areas that will be addressed are whether it is a good investment, how to make money from investing in the FTSE 250, and various popular investment strategies.
Is FTSE 250 a Good Investment?
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 great 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 an excellent chance for FTSE 250 investors to ‘get in at the ground floor’ and invest at attractive prices.
Also, the FTSE 250 is a good investment for gaining exposure to the UK market. The majority of firms that hold a place in the index are based domestically, such as Greggs and B&M. Thus, if you are looking for an investment that allows you to diversify into the UK equity market whilst gaining exposure to sectors such as retail and construction, then a FTSE 250 investment might be a good idea for you.
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.
Your capital is at risk.
How to Make Money from Investing in FTSE 250
The majority of investors make money from investing in FTSE 250 by placing capital in an index fund or tracker fund and leaving it for the long-term. Earlier in the guide, we discussed how to invest in FTSE 250 tracker funds, along with their benefits. Utilising an investment vehicle such as this allows for a passive investment. Furthermore, returns are usually relatively attractive, averaging 9.06% yearly returns over the past decade.
However, one of the best ways to invest money in the FTSE 250 is to create your own portfolio of companies included in the index. This is a great way to customise your portfolio’s weighting to your exact needs; so, if you wanted to invest more in Aston Martin than Alliance, that is something you can tailor exactly how you’d like! With eToro, you can easily create a portfolio including the vast majority of FTSE 250 stocks, all without paying any commission!
FTSE 250 Investment Strategies
The FTSE 250 is mainly thought of as a long-term investment, so day trading strategies aren’t the most efficient. Although you can do it, most investors opt to place some capital in an asset that provides them with exposure to the FTSE 250 for a period of years rather than days.
An excellent strategy to utilise to build up your exposure is a dollar-cost averaging strategy. This involves investing a set amount of money into your chosen asset (for example, a FTSE 250 index fund) consistently and over long period of time. For instance, you could invest £200 each month into the fund for 5 years, regardless of where the price is.
This strategy is attractive as it allows you to build up your position over an extended period of time, rather than putting lots of money in at once. In addition, it flips the negative association with the price going down; as you are investing regardless of the price, when it goes down, it can be thought of as getting in at a lower price, opening you up to larger returns in the future. Furthermore, looking at the above FTSE 250 price chart from the London Stock Exchange, you can see that overall the index tends to trend upwards, providing confidence in the dollar-cost averaging strategy over the longer-term.
Another strategy is to invest a lump sum into a FTSE 250 tracker fund or a portfolio you have created and ‘forget’ about it for a more extended period. As this index is more of a passive investment, this strategy will allow you to avoid the temptation to rebalance or change your portfolio’s weighting due to fluctuations in price. As we have touched on earlier, the FTSE 250 returned just over 9% on average over the last decade, so leaving your capital in over the long term is more effective than just for a month or two.
Finally, it’s important to note how vital a FTSE 250 investment could be for portfolio diversification. If you currently hold a portfolio that is biased towards US equities, it might be a good idea to diversify with a FTSE 250 investment. This will allow you to spread the risk across multiple assets and across geographical areas, which can reduce the impact of a downturn in one of the areas of your portfolio. You can even add just a few FTSE 250 stocks to your existing portfolio rather than investing in all of them; this can be done quickly and easily with eToro, with a minimum investment of only $50!
Step 4: How to Invest in FTSE 250 on eToro
The previous sections of this guide have highlighted the various elements you must consider when investing in the FTSE 250, along with some of the best investments and strategies that may be worth exploring.
This section will guide you through the actual process of investing in the FTSE 250 step-by-step, using FCA-regulated broker eToro as an example. We recommend using eToro to gain exposure to the FTSE 250, as they allow you to invest in various assets without having to pay any commission whatsoever!
Step 1: Open an Account with eToro
The first thing you need to do is open your account. With eToro, this process is quick and easy and can be completed on their website or investment app. Simply click ‘Join Now’ and then enter some personal details to create your account.
Step 2: Upload ID and Proof of Address
Due to being FCA-regulated, eToro require new users to verify their identity and address. Again, eToro makes this process very streamlined – all you need to do is upload proof of ID (a copy of your passport or driver’s license) and proof of address (a copy of a bank statement or utility bill). After uploading these documents, eToro will then go ahead and verify them; this usually only takes a few minutes.
Step 3: Deposit Funds
The third step involves funding your account so that you can invest in FTSE 250 UK. You have many options to choose from to make your deposit, such as credit/debit card, bank transfer, or e-wallet. The quickest way is through a credit/debit card, as the funds will arrive in your account instantly. If you decide to deposit via bank transfer, funds can take up to three working days to arrive in your account.
Step 4: Search for FTSE 250 Stocks
The next step involves searching for FTSE 250 stocks to include in your portfolio in order to track the index’s performance. For this step, we will use Aston Martin as an example.
Simply click on the search bar at the top of the page and type in ‘Aston’, then click the top result.
Step 5: Place Your Trade
The final step involves finalising your trade with eToro. Simply click the ‘Trade’ button on the stock’s page, and you’ll be met with a screen that looks like the picture below. Now, simply enter how much you’d like to invest (eToro allows a minimum investment of only $50) and click ‘Open Trade’.
And that’s it! You have just completed your first investment in FTSE 250 stocks. Now, you can repeat steps 4 and 5 to create a portfolio of additional FTSE 250 stocks that will allow you to track the index’s performance whilst providing essential diversification benefits.
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 great potential for growth means it can offer investors the chance to make greater returns.
If you are looking for a broker to invest in the FTSE 250 with, we recommend using eToro. eToro allows you to purchase the stocks that make up the FTSE 250 without paying a penny in commission. What’s more, with a minimum trade size of only $50 (equating to roughly £36), eToro is accessible to a wide range of traders. Finally, eToro is regulated by the FCA, meaning strict measures are put in place to protect both you and the money you hold with eToro.
eToro – Invest in FTSE 250 UK – 100% Commission-Free
67% of retail investor accounts lose money when trading CFDs with this provider.
Should I invest in FTSE 250?
This depends on your risk tolerance. However, the FTSE 250 is made up of smaller companies than other indices such as the FTSE 100; therefore, there is more room for returns in this index. Furthermore, the dividend growth rate in the FTSE 250 is far higher than the FTSE 100. So, if you are willing to take on a little more risk to potentially get higher returns, the FTSE 250 might be a good investment.
How can I day trade the FTSE 250?
You can’t day trade the FTSE 250 directly; however, what you can do is day trade some of its constituents. You can do this by using a broker like eToro than offers stock trading with 0% commission.
What are the best FTSE 250 companies to invest in?
The answer to this question tends to change all the time, depending on the time of year and market conditions. However, two of the best companies to invest in right now might be Wizz Air and Ocado; both companies are primed to take advantage of lifestyle changes caused by Coronavirus and could see an upsurge in price going forward.
What sort of returns can I make by investing in the FTSE 250?
The FTSE 250 index itself has returned an average of 8% each year over the past decade. However, it does tend to fluctuate; for example, the index returned 25.03% in 2019, then was down 6.16% in 2020. Overall though, the index has only produced a negative return in 3 of the last 10 years.
How much money should I invest in the FTSE 250?
This all comes down to personal preference and what sort of money you have available to invest. With eToro, you can create your own portfolio of FTSE 250 stocks to emulate the index's return. Also, you can invest as little as $50 in each stock, allowing you to build up a solid portfolio of your favourite FTSE 250 stocks that you feel give you the best chance of making a positive return overall.