What is the FTSE 250? The basics

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

The FTSE 250 is an index of the next biggest companies after the top 100 in the UK. The companies must be listed on the London Stock Exchange and denominated in pounds to be included.

The FTSE index was established by the London Stock Exchange and the Financial Times to allow investors to access information about British markets.

The companies included in the FTSE 250 tend to rely more on domestic operations than their counterparts in the FTSE 100. Some investors consider the FTSE 250 to be a better barometer of the British markets as a result.

Some investment trusts – funds which trade on the stock exchange – have a large enough value to be included in the index.

How is the FTSE 250 decided?

To be included in FTSE indices a company must be listed in London and use pounds as its currency.

The FTSE indices are established based on market capitalisation. This means the size and value of the company. The 100 biggest companies are included in the FTSE 100 and the next 250 make up the FTSE 250.

Like its better-known cousin, it is weighted towards the larger companies in the index. This means that the firms at the top of the list will have more of an influence on performance than those at the bottom.

How to invest in the FTSE 250?

You can buy stocks in FTSE 250 companies. Using the list as a guide you can choose to invest in the companies that you think will perform well.

This approach gives you a high level of control over your investments, as you can pick stocks as you wish. But it is potentially higher risk than other strategies. If you are overly reliant on a stock that underperforms then your returns will suffer. You can mitigate this risk by diversifying your portfolio across a number of stocks or other investment securities.

Buying stocks can also be more expensive than other ways of investing.

The other way to gain exposure to the FTSE 250 is via ETFs. These are funds which pool investors’ money and use it to buy company stocks. A FTSE 250 fund will track the index and attempt to replicate its performance. You have less control over your investments, but annual charges tend to be low.

An example is the Vanguard FTSE 250 UCITS ETF which features on our Select 50 list of funds selected by experts.

You can also invest via CFDs, a type of product which “bets” on the performance of the index and potentially allows you to profit if it underperforms. These are considered to be high risk.

What are the risks of investing in the FTSE 250?

While FTSE 250 companies are still some of the biggest in the country, they are smaller than their counterparts in the FTSE 100. This comes with a slightly higher risk of volatility. If you are invested for the long term then this shouldn’t put you off.

Because they have a stronger reliance on domestic business, they are also more vulnerable to downturns in the UK.

• Learn more about the FTSE 250
• Use our Investment Finder to track down a share or fund