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Telecom Sector Constituents & % Weightings.
BT Group	16.8%
Cable & Wireless	1.1%
Colt Telecom	0.5%
Kingston Communications	0.2%
MMO2	3.9%
Vodafone	77.5%
TOTAL	100%

The above example is perhaps not the best because Vodafone is such a large percentage of the total. In most other sectors you'll actually see a far wider distribution of stock Weightings.

How Sector Spread Bets Work

Exactly the same as any spread bet. The spread betting company will quote a two-way price and the client then has the choice of going long or short with an associated pound per point.

Bank Sector Trade Example

• The date is 14th May and the Spread betting company quotes 4650-4685 for the June Banking sector spread bet
• You are bullish and so buy £5 at the offer price of 4685
• One week later the spread is now quoted at 4745 - 4780 and you decide to take your profit
• You sell at the bid price of 4745 and your profit is therefore 60 points x £5, or £300

Long & Short - A Hedged Portfolio

Some traders like to try and hedge their risk in the market by going long one sector and going short another, or perhaps do this on a range of sectors.

You could for example go long Banks, Construction and Aerospace & Defence while simultaneously going short Mining, Oil & Gas and Tobacco. A view like this is easily tradable using spread bet sector futures.

Of course if you have good stock picking skills you can also set these kind of hedged trades using individual stocks within a sector.

Margin & Sector Bets

Margin works exactly the same as with other spread bets. Usually the initial margin ranges from 7.5%-15% of the index quoted. So if the mid price of a sector bet is 2000 then at 10% the margin factor will be 200 x pounds per point.

If a trader wants to buy a sector while shorting another sector the spread betting company may well offer a reduced initial margin because the total trade can be viewed as partially hedged. This is a complex matter though and should be discussed with the spread betting broker in question.

Basically what this refers to is that if you go long sector A and short sector B and the following day the stockmarket crashes 20%, you will take a massive loss on the sector you're long but have an equally massive profit on the short sector. Hence there's not too much risk associated with the trade.

Daily Bets on Sectors Are Offered

Most spread betting brokers will also offer daily bets on the most popular sectors and these work in exactly the same fashion as a daily bet on a share, i.e. expiring at the end of the day. Of course though daily sector bets can easily be rolled into the following day.