CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data. *Availability subject to regulation.
The FTSE 250 Index is the UK’s mid-cap index composed of the next 250 largest companies after the top 100 listed on the London Stock Exchange, weighted by market capitalisation. The performance of the largest 100 companies is tracked by the FTSE 100 index.
Maintained by the FTSE Group, the FTSE 250 was launched in 1992 and was backdated to December 1985. It is considered a better indicator of the UK economy than the FTSE 100 as a result of the incorporation of less international components.
The FTSE acronym stands for Financial Times Stock Exchange, however this refers not to a stock exchange, but to the FTSE International Limited company, who specialise in index calculation. The company is wholly owned by the London Stock Exchange Group.
The index constituents are selected based on criteria determined by the FTSE Group, a trading name for FTSE International Ltd. An accepted currency dominated price (either Pounds Sterling or Euro) is required, and free float, liquidity and nationality specifications are also included the criteria.
The FTSE 250 covers 10 different industries, as classified by the Industry Classification Benchmark (ICB). The industries represented are basic materials, oil and gas, technology, consumer services, consumer goods, healthcare, telecommunications, financials, industrials, and utilities. Financials constitute the largest industry within the index at 26.7%.
The top ten constituents of the FTSE 250 along with their industry classifications, as at the 30th June 2017, were as follows:
Capita (Support Services), Melrose Industries (Construction & Materials), Smith (DS) General Industrials), Halma (Electronic & Electrical Equipment), Berkeley Group Holdings (Household Goods & Home Construction), Spirax-Sarco Engineering (Industrial Engineering), Rightmove (Media), Weir Group (Industrial Engineering), Just Eat (General Retailers), and Meggitt (Aerospace & Defense). These ten companies represent 10.6% of the entire index. The largest company, Capita, had a weighting of 1.2% by net market-cap.
The top gaining stocks on the FTSE 250 as at 27th of July, 2017 were:
The FTSE 250 index is a capitalisation-weighted index, and the components are determined by the total market value of outstanding shares. This is calculated by multiplying the number of shares by the share price. Selection of the components, as well as promotions and removals, take place quarterly in March, June, September, and December.
The index is arithmetic weighted; it uses the free float adjusted market values of the components, divided by a divisor. The initial divisor used for the index was the market capitalistion total for all the companies included in the index on a starting date, divided by an arbitrary value. In the case of the FTSE 250, the base value was 1412.6 and the starting date was 31st December 1985. A formula is then used to make necessary adjustments to the index divisor following corporate actions and changes to the constituents. This is known as the Paasche formula.
For a more detailed description of how the index value is calculated, see the FTSE Russell Guide to Calculation Methods for the FTSE UK Index Series.
Using this calculation method, a larger company will make up a larger proportion of the index, and will, therefore, hold more weight than a smaller company, having more of an effect on the index.
Indices differ from stocks in that they can not be traded directly. However, they can be traded using products such as futures contracts, exchange traded funds (ETFs), and contracts for difference (CFDs).
The advantages that CFDs possess over other means of trading on the FTSE 250 include the ease with which they can be traded. While contract specifications vary between brokers, the process of trading CFDs is fairly consistent. A minimum number of contracts will be set for each transaction, and a margin will be required, which is the proportion of the value of the trade that will need to be deposited to open the contract. The high leverage on these types of products mean that a trader can be highly exposed to market movements with relatively little capital, although it should be noted that as well as going in the trader’s favour, this can also go against a trader, magnifying any losses.
With CFDs, a trader does not actually own the underlying asset, but simply speculates on the movement of the index. This means that traders can also go “short”, allowing them to take advantage of any deterioration of the index value.
Generally no commission is charged for CFDs, and the broker takes their fee from the spread – the difference between the bid and ask prices. The spread is, therefore, an important factor when it comes to choosing a broker.
Within the UK, CFDs are not subject to stamp duty; and for tax purposes, losses can be offset against any returns.
Traders who want to learn more about CFD products should contact a regulated brokerage firm.
IG Markets are authorised and regulated by the UK’s Financial Conduct Regulator to provide CFDs, and offer their clients the FTSE Mid 250, which is a CFD product based on the FTSE 250 index.
The minimum trade size is 0.10 Contract with the value of 1 lot or pip being GBP 10. A margin requirement of 5% is required.
The minimum requirements for a trade on the FTSE Mid 250 CFD provided by IG would be £9.87 (19748*0.1*10*0.05% = £9.87).
*All information collected from IG as at 28 July 2017. Please refer to the IG website for full terms and conditions.
In conclusion, the FTSE 250 represents the performance of mid-cap companies listed on the LSE, and as such is a good reflection of the UK economy. The index can be traded using a variety of instruments, including CFDs. A broker regulated by a well-known and respected regulator is recommended as the regulations are designed to protect the interests and funds of traders. Brokers such as IG Markets and London Capital Group offer access to the FTSE 250 index through CFD and ETF products, and other markets can also be accessed through their trading platforms.