Executing Spread Bets on the Financial Sectors

13sectors280813What are Market Sectors?

They are utilized to denote groups of companies that perform business into the same market. For example, BP and EXXON could both reside within the oil sector; Wells Fargo and Goldman Sachs are members of the financial sector while British Telecom and Vodafone operate in the Telecommunications Sector. A comprehensive list of sectors is presented at the end of this article. Many international newspapers, such as the Wall Street Journal and the Financial Times, usually categorize companies, which are quoted on the global stock exchanges, in sectors towards the back of their editions. You will also find that most spread betting brokers adopt a similar policy by associating firms with their relevant market sectors.

 

Why are Sectors Important?

As you no doubt are aware major indices already exist, such as the S&P 500 and FTSE, which represent groups of companies within countries, such as the USA, UK, Germany and Japan, etc. These tools are extremely useful as they signify the performance of a group of companies over any specified time period. They also are excellent assets in their own right upon which to base spread bets.

However, they do have a weakness in that they only provide a generalized viewpoint about how the top ranking firms within a country are currently performing. This is because indices consist of numerous companies that tend to operate in diverse markets. For example, you will find that companies from the oil, technology and financial sectors, etc. would all be listed by the same index. For instance, the FTSE100 represents and displays the performance of the top 100 firms operating within the UK. However, this index comprises companies operating in a variety of different market sectors.

Although indices provide a good overall view of the general health of a country’s economy, they do not disclose how well particular sectors are operating. For instance, how are the financial and telecommunications sectors faring? As this type of information is very useful to traders, sectors were devised that focus specifically on the performance of firms operating within the same line of business, e.g. Google, Apple, Microsoft, etc. As such, this feature implies that sectors can help you acquire much deeper insights into how certain markets are trading.

For example, sectors can provide you with an almost instantaneous snapshot about exactly how a specific sector is performing in comparison to others. As such, they can act as effective health guides for these different markets. In addition, they can assist you in exploiting the correlations that exist between the various sectors.

 

Correlation and Sectors

For instance, by studying the performance of oil, which is a member of Oil and Gas sector, you can ascertain its impacts on other sectors whose performance is heavily linked to its trading activity, e.g. Engineering and Machinery, Transport and Electricity, etc. For example, envisage that prices are continuing to climb within the Oil & Gas sector. Such developments would have a direct impact on the correlated Transports sector as well as the retail markets.

What exactly would be the knock-on effects if the price of oil proceeded to appreciate over a period of time? Would the performance of car manufacturers improve or decline? The answer to these questions is that the trading performances of automobile producers would definitely deteriorate as their profits would begin to slide as a result of soaring operating costs. As such, if you detect that oil prices were beginning to climb, then you could also consider activating a short spread bet on a particular car producer, such as Ford, etc.

You can trade market sectors by initiating spread bets supported by either Daily or Quarterly contracts. There is speculation that some spread betting brokers may introduce weekly contracts within the near future but nothing has been confirmed to date. You can, however, use rolling trades to bet on the trading sectors.

Essentially, although indices and market sectors can provide you with important but differing viewpoints about prevailing market conditions, the process to initial spread bets based on either of them is practically identical. Possibly the most important benefit of market sectors is the ability to exploit the correlation influences that exist among the various groups.

 

List of Market Sectors:

Aerospace & Defense

Banks

Beverages

Chemicals

Construction & Building Materials

Electricity

Electronic & Electrical Equipment

Engineering & Machinery

Food & Drug Retailers

Food Producers & Processors

Forestry & Paper

Gas Distribution

General Retailers

Health

Household Goods & Textiles

Information Technology Hardware

Insurance

Leisure, Entertainment & Hotels

Life Assurance

Media & Photography

Mining

Oil & Gas

Personal Care & Household Products

Pharmaceuticals & Biotech

Real Estate

Software & Computer Services

Other Financial Services

Steel & Other Metals

Support Services

Telecommunications Services

Tobacco

Transport

Water

After studying the above list, you can readily confirm why the performance of one sector can impact those of others. You should particularly note that some sectors, such as the Oil & Gas, have the ability to influence the performances of a large number of other groups.

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