Trade FTSE 250 Shares

UK mid caps are all too often overlooked by speculators more interested in the blue chip brands of the FTSE 100 index or the higher-risk bargains to be had further down the market cap scale. However, below the glitz and glamour of the FTSE’s flagship blue chip index, retail traders are finding increasing numbers of opportunities in the FTSE 250, the next 150 biggest companies by market capitalisation. Although there are undoubtedly some smaller companies traders might be unfamiliar with, there are a number of household names for the UK investor such as Britvic, Debenhams, Dominos Pizza and Ladbrokes.

The FTSE 250 is a very interesting selection of shares for the spread better. Unlike its bigger brother, the FTSE 100, it contains mid-cap companies, many of which are nonetheless still household names. The FTSE 250 represents about 15% of the UK market capitalization. The largest 100 companies, in the FTSE 100, cover 80% of the UK market. However, with 250 companies to choose from, from the 101st to the 350th in the country, there is a wide range of sectors and volatility for the active trader in the FTSE 250.

Because they are more volatile than the top 100, these companies are appealing to traders with some investment experience who want the possibility of stable but fast-growing picks. It doesn’t matter much to the spread better that the dividends tend to be smaller with this range of companies. The FTSE 250 has greater potential capital growth and consequently rewards for the trader.

Trading FTSE 250 Shares by David Jones of IG Index

It is somewhat harder to profit from the day-to-day fluctuations of the FTSE 250 index in the same way as the FTSE 100, but for beginners FTSE 250 stocks offer a practical starting point. In particular FTSE 250 share trades work better with longer term plays over 3 or 4 months. If spread traders employ quarterly contracts, all the costs of the bet will be reflected in the spread which makes it possible to run positions like a shares portfolio, provided stop loss orders are appropriately linked to these trades to to offset the downside risk. A spread betting investor with a position on Rightmove from 2009 could have profited from the action by riding its steady uptrend from 160p all the way up to 1,011p. Moreover, leveraged spread betting positions would have resulted in a better return than owning the underlying shares.

In 2009 the best performer in the FTSE 250 was Ferrexpo, up 520% and beating any returns in the FTSE 100. On average the FTSE 250 was up 42%, whereas the FTSE 100 index could only achieve 22%. Despite the fact that the FTSE 250 doesn’t include the top companies, there are many that are familiar on the High Street, such as Bovis Homes, Britvic, Daily Mail, Dominos Pizza, Easyjet, Ladbrokes, Mothercare and others.

One company that has been doing well should be familiar to the spread better. It’s IG Group which provides trading services for both spread betting, CFDs and Forex. In recent years it has expanded into mainland Europe, Singapore, and the United States, and these growth areas are now contributing nearly half of its revenues.

Another company which can be expected to continue growing in the current economic climate is JD Wetherspoon, which is now the biggest pub chain in the UK. It has an active expansion program, opening 39 new locations in 2009 and expecting to open another 40 in 2010. The shares were up 38% in the past year.

A third company which has been doing well because of the downturn is the UK-based staffing business SThree, whose shares more than doubled in value in the last year. It’s aggressively growing into Europe and expanding from its traditional IT sector involvement to cover the engineering, accountancy, HR and financial topics.

As you can see, the FTSE 250 has some excellent prospects for profit, despite the current state of the economy. The companies are still large enough that you will have heard of many of them, and researching into their profitability will be easy; but being outside the top 100 capitalized companies means that they are not so stuck in their ways, and are able to perform better than their larger peers. FTSE 250 stocks are not as risky as small-cap companies and easier to deal in than AIM companies but still offer good scope for profit from spread betting. Small caps companies on the other hand can be harder to spread trade due to their spreads, increased volatility and illiquidity.

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