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FAQ Page 4 - Question 40

Q: I've heard people buying the FTSE excluding this or that sector, what does this mean and are spread bets applicable?

A: This is an interesting style of trading which people have been experimenting with over the last few years.

Basically the FTSE 100 is made up of around 100 stocks. The individual stocks are placed in different sectors such as telecoms, drinks, property, drugs etc. If the overall index moves up by 20% over a year then this is the sum of movement within the different sectors, but they obviously won't all move by + 20%. You may find that telecoms move up by 40% but drugs only up 5% etc.

What the trader is forecasting when he buys the FTSE index excluding say the Hotel sector is that Hotels will be a drag on the overall index, or to put it another way, underperform. If he's right then the FTSE may well be up 15% over six months with Hotels unchanged perhaps translating to a gain of 20% for the trade, 5% better than the index. In order to do this trade he would buy the FTSE and sell short the Hotel sector bet in the same % as it is represented in the index, in this case I think about 5%.

If this explanation is confusing to you then don't attempt to trade this way, instead keep your trading and speculating to a level of expertise that you understand.

For more information on sector bets look here