Spread betting on sectors opens up a unique style of market trading that allows you to predict the movement of a particular industry. The FTSE 100 index is made up of companies from many sectors; this means that the index will increase or decrease based on broad economic impacts and not industry specific impacts. When spread betting on sectors you are able to bet on a specific industry. There are dozens of sectors to bet on and range from finance and utilities to tobacco and mining – this list is usually compiled from those sectors represented by the FTSE 250.
Why Bet on a Sector
When we look at the FTSE 100 we see an overall picture of the UK economy. But the FTSE 100 is made up of many different sectors all with their own rallies and falls. If the FTSE 100 goes up, it does not necessarily mean that all sectors are doing well – in fact one or more sectors could be performing incredibly badly with the FTSE being held by oil and finance.
Sector spread betting is also a great tool for hedging. Let’s say that you thought the FTSE 100 was due a big rally, however at the same time you were aware that the food producers sector was struggling. In this instance, you could buy the FTSE 100 and sell the food producers sector to hedge against the chance of the FTSE falling.
i.e. if FTSE does not perform as expected and falls, then there is a good chance that your chosen week sector would also fall. This would result in your FTSE buy losing money, but your sector sell earning money.
Sector Spread Betting Example
It’s January 4th 2013 and your opinion is that the FTSE 100 is being held back by a poor performing finance sector. For this reason, you decide to ‘go short’ and sell this sector at a price of 23424/23484 for £10 per point.
Over the next few days, your bet pays off and the sector contracts slightly to a spread of 23295/23355 – you decide to lock in your profit and buy at 23355.
Opened: 23424 / Closed: 23355 / Difference: 69 / Profit: £690