Trading Financial Sectors

What are sectors?

Sectors can be seen as collectives of companies that represent a particular market, for instance British Telecom, Telewest etc. all come under the Sector called Telecoms within the FTSE350. HSBC, Barclays Plc would come under Banking within the FTSE100 as would Wells Fargo come under Banking within DJIA. There are many sectors that I will list at the end of the section, you maybe surprised at how many there are. Most financial papers like the Financial Times NY/London versions, have sector listings within the back of them. Also, most if not all charting packages allow you to view sector performance in chart form, and to break down the companies that appear within each sector.

Why have sectors?

Its all well and good having lists of the top 100, 250 or 350 companies within either the US, Japan or UK. Which give a generalised view of the top performing companies in once snapshot such as that seen by the FTSE100, which shows as a collective how the top 100 companies within the UK are performing.

However, the companies that are within the FTSE100 consist of varying companies who have very differing markets. So to get a tighter view on particular markets, we use sectors to show how a market sector, a group of companies that share a market type, is performing.

Having these separate market sectors allows us to see a snapshot view of that sector and to act as a larger barometer for that sector. The ability to read and connect sectors then allows you to use this ‘Fundamental’ analysis to gauge the price movements in one sector, that have a reflection in another sector.

Remember in an earlier example, I gave the commodity for Oil a mention which comes under the Oil & Gas Sector, no prizes for guessing that one. In that example we could follow, using that market sector price rise, to gauge an effect within other sectors, namely Transport, Engineering & Machinery, Electricity as an initial knock on effect. If prices continued to rise within the Oil & Gas markets, then these in turn would affect prices in Electronic & Electrical Equipment and other retail markets. Would it have a positive effect if price rises in the Oil & Gas Sector went up? Not at all, it would decrease profits with the knock on effect on markets and therefore, if you were trading in say Transport as a market sector, you would look to go SHORT in the medium term on a 3 month contract. We shall be looking more about trading strategies later in these modules.

The contract lengths for Sectors range from Daily to Quarterly only. I have yet to see any Financial Bookmaker having weekly contracts. In fact weekly contracts generally are quite rare within The spread betting companies. Some bookmakers are offering Rollover trades (Rolling trades) but you know my view on Rolling Trades.

Other than giving you the ability to view a group of companies as a sum of the whole index linked to a market type, there are no fundamental differences with trading this product. Just take note of the knock on effect that some market sectors have on others. I believe that is the biggest lesson to take from this part of the modules.

MARKET SECTORS:

  • Aerospace & Defence
  • 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
  • Speciality & Other Finance
  • Steel & Other Metals
  • Support Services
  • Telecommunications Services
  • Tobacco
  • Transport
  • Water

Looking at the above market sectors it is easy to see which market sectors would have a knock on effect on another. Some sectors such as Oil & Gas would have a knock on effect to most areas.

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