Thursday, 12 April 2007

Sector Trading

I know lots of people trade the Forex market, some as amateures and some traders make a good living out of it doing it full-time as professional traders - at the same time there are a huge number of traders who only concentrate on trading the main Sotcks Indices, like the Dow Jones, SP500 of the USA, UK FTSE100, the German DAX30 and so on ... but if you have been watching the markets for a number of years, you may prefer to trade the SECTORS .....

In my experience trading a certain sector using CFDs is far more managable and rewarding than trading the FOREX market or the indices - some indices are very difficult instruments to trade; NIKKEI225 of Japan for instance has very wide trading ranges and it has been known to have fluctuated many 100's of points on the same day and if you happen not to play it professionally by not having used the correct STOP LOSSES or had a bad "Entry Point" to start with or did not apply a good "money mangement system", specifically if you are only a small trader, you could soon find yourself withdrawing more money out of your bank account to respond to your Broker's MARGIN CALLs; Whereas if you happen to pick a group of companies with the same nature of businesses like the BANKS (banking sector), the MINERS (mining sector), the RETAILERS (retailing sector) and so on ... and have done your financial studies correctly on them i.e. you know the PE ratios of the sector, dividend yeilds, the PEG factor or other fundamental factors which you normally use, and ... in addition to that you are also aware of the highs and lows of that particular sector, then as a trader you have made life a lot easier for yourself ... and the likelyhood that your CFD postion will give you a handsome profit is a lot higher.

Another attraction of trading the sectors on CFDs is that most brokers require only 1% margin for opening a new position, whereas if you just traded the stocks on their own you could be required to outlay a margin of anything from 3% to 20% depending on the broker's requirements.

Also, it is worth bearing in mind that sometimes when you trade a stock like for instance Vodafone or Sage Grp in the UK market, you may not have the necessary fluctuation in that stock to either day-trade the stock or scalp it often enough to give you a profit on the day, whereas in trading the sectors you will find, it will offer you more movements to enable you to take a profit at the end of your trading day. Hence, no need to roll over your position to the next trading day, which will in effect, save you additional costs and will eliminate the risk of your transaction.

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