T2W Trading Community

There are now many brokers that will allow you to open a ‘virtual’ account. These accounts are a great learning tool. As you will be using the same tools, the same trades, the exact same information that you use when you begin trading real money. However, with ‘virtual’ money it’s easy. We know that it is make believe. Believe me, to make the same trade using your own hard earned money is very different indeed.

So don't forget! The next few pages are just an outline of what products you as a trader can trade. They vary from financial bookmaker to financial bookmaker. Some have better spreads on trades than others, some companies will not deal with some of the products I am mentioning. I do believe though that knowledge is power and you can then benefit from this knowledge.

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 and London issues, have sector listings within the back of them. Also most if not all charting packages allow you view sector performance in chart form, and to break down which 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 (group of companies that share a market type) are performing.

Having these separate market sectors allow us a snapshot view of that sector and act as a large barometer of that sector. Ability to read and connect sectors allows you to possible use this 'Fundamental' analysis to gauge what the price movements in one sector may have a reflection to another.

Remember in an earlier example, I gave the commodity oil a mention: it comes under the Oil & Gas Sector (no prizes for guessing that one). In that example we could follow use 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 within the knock on effect 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 the Workbook.

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 contract generally are quite rare within financial bookmakers. 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 other market sectors have on others. I believe that is the biggest lesson to take from this part of the workbook.

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 to another. Some sectors such as Oil & Gas would have a knock on effect to most areas.