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City Index: Why you Should Consider Trading the Retail Sector not Just Retailers
Jan 11, 2012 (02:01 PM EST)


LONDON, January 11, 2012 /PRNewswire/ --

Spread betting provider City Index explains why you should consider trading the retail sector and not just retailers within the sector.

While the UK retail sector continues to enjoy notable gains on the FTSE 100 between the 19th December 2011 and 11th January 2012, the gap between high street winners and losers is widening.

While new traders may be tempted to put all their eggs in one basket and spread bet on renowned retailers, like Marks and Spencer, it is often far safer and can be more profitable spread betting on the entire retail sector instead. This is because your trade is diversified across a number of companies in the same industry.

There is also a tendency for less volatility as most stocks will follow the general trend of the sector. This means that fluctuations are less likely, even if some companies fail to follow these trends. So by trading the entire sector, your exposure to fluctuations in individual stocks is greatly reduced.

For example, Sainsbury shares rose 1% in the initial hours after reporting a trading update on the 11th January  2012which saw Christmas sales beat forecasts. Store extensions and the company's expansion into convenience outlets, online shopping and non food ranges helped it to weather the tough market.

Shares in Marks and Spencer saw gains of 3% on Tuesday 10th January after the firm reported a 2.4% rise in group sales excluding VAT, with UK sales rising 1.8% as food sales hit record levels over the Christmas period. 

However, shares in Game Group plummeted over 40% on the same day after the struggling game retailer warned it may breach the terms of its loans after a bad Christmas sales period. The firm said sales were even worse than predicted over the last eight weeks, down 14.7%.

HMV shares have continually suffered in the face of tough economic conditions, falling 99% since 2005 from 282p to 2.9p from February 2005 to January 2012.

By diversifying trades across a number of companies in the same industry, your spread bets become less vulnerable to fluctuations in individual company share prices, because these are stabilised by the sector as a whole.

Trading a sector also allows for more considered speculation on market movements. At present the UK's major retailers face tough headwinds in the form of squeezed disposable incomes from high prices, muted wage growth and government austerity measures.

Spread bettors are using risk management tools and charting to forecast potential changes in the retail sector instead of putting all your eggs in one basket and risking it all on the shares of one company that may be impacted by a wider range of factors.

Learn more about sector spread betting at: http://www.cityindex.co.uk/range-of-markets/sectors-spread-betting.aspx

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.


About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, spread betting.

Learn more about the markets with daily news and insights from the City Index trading floor at http://www.cityindex.co.uk/market-analysis/

 


SOURCE City Index