Sectors Spread Betting – How to Trade and What Broker to Choose?

Financial spread bettors tend to think by default about spread betting on the FTSE100, or the price of shares in FTSE companies. Rather than trading on the basis of individual companies or the entirety of the UK’s leading businesses, traders can also drill down by sector area to spread on the performance of a basket of providers by industry. This enables speculation on sectors as an entity, so you can back industries that are set for growth and short those that are in turmoil – particularly useful as a tool for shorting in times of market crisis, or supporting industry-wide price rallies.

What Are Sectors Spread Bets?

Sectors are most commonly traded as a subdivision of the FTSE350 market, which can enable traders to drill down into specific industry areas. Markets are made up of aggregated share performance data from companies trading in the relevant industry sectors, creating an artificial market on which spread bettors can trade. This allows traders to leverage returns from sector-wide performance through financial spread betting, providing multiples of return for each point the sector market moves.

Advantages of Spread Betting on Sectors

Trading in sectors directly isn’t possible unless you buy a collection of sector shares or buy in to a sector-linked investment fund. This puts spread betting at an immediate advantage as a method of accessing wider sectors, which in turn provides a range of benefits to a trading account.  Sector spread trading helps to diversify the threat of backing an emerging trend, and helps offset the risk of trading on one particular company’s performance.

This enables traders to take exposure to the average sector performance, which is often easier to gauge than a particular company, and allows more dynamic reaction to market changes. In times of market crisis for example, shorting linked sectors can profit from panic amongst investors which might affect a whole sector, albeit differently on a company-by-company basis.

Disadvantages of Sectors Spread Betting

Spread betting on sectors allows access to the sector average performance, and while this is a strength for quick, responsive decision-making, or for backing a sector that is anticipating a surge, it can also prove a limitation. When Lehmann Brothers collapsed, banking and financial markets were sent into disarray. At the same time, some banks were worse hit than others in the markets, and being tied to the sector as a whole naturally means you are unable to benefit from the fullest potential opportunities available. With research into specific performers, higher rewards can be pursued, albeit in a higher risk trading environment.

Furthermore, sector performance is rarely as volatile as other markets, given that it takes significant external factors in most cases to shake up a whole market. While the leverage inherent in financial spread betting offsets this to a certain degree, it makes it potentially less profitable than more volatile markets in situations of relative market calm.