There’s no hard and fast rule for picking stocks for your CFD portfolio. The only rule, if there needs to be one, is research – digging deep to find the types of instruments that match your long and short term trading goals.
While there are 11 “official sectors” of the stock market, each representing a key area of the economy, we thought we’d take a more creative approach to breaking down the 800+ CFD instruments available on the Vestle online trading platform. Shooting instead for the main stock trading industries that we interact with most in our everyday lives, like food, energy, the auto industry, financial services and technology.
Each of these stock trading industries has its ups and downs, its benefits and its drawbacks, its advantages and its disadvantages, but in no way are we saying one industry is better than the other or advising you to choose one over another.
Rather the purpose of this article is to shed some light on which of these stock trading industries are currently shaking up the Vestle online trading platform and delving into the pros and cons of each.
When it comes to choosing instruments, some traders like to mix it up to ensure a diversified portfolio, so here’s a better idea of what’s out there, should you decide to explore the CFD trading opportunities within certain stock trading industries.
What better way to whet your appetite than to begin with food? The food industry is traded all sorts of ways on the various global stock markets, whether as raw materials (commodities) like sugar, corn, cocoa and wheat; as companies like Starbucks, whose market capital is estimated at $110 billion or McDonald’s, topping $162 billion; and as food-meets-tech companies, like Amazon.com, who also happens to be the owner of WholeFoods, valued at a staggering $990 billion.
One of the most active players lately on the Vestle online trading platform is Beyond Meat, a Los Angeles-based vegan meat substitute start-up whose May, 2019 initial public offering spiked market prices up 734%, breaking the $200/share threshold and achieving a market cap in excess of $12 billion.
Advantages: Perhaps the main advantage of investing in the food industry is demand based on relevance; as long as there are people around to eat it, food will always be necessary. But typically, traders have chosen food stocks for a number of reasons, including:
- growth opportunities stemming from increased demand for commodities;
- to diversify their portfolios with the intent to stabilise annual profits and avoid big losses, and;
- as security against inflation; when the prices of goods and services increase, the value of the commodities required for their production tends to rise in response.
Disadvantages: Just like the stack of eclairs in the bakery window, as delicious as food stocks can appear from the outset, they do have their shortcomings. Some analysts are overall un-optimistic about food stocks in general, citing a dwindling interest in traditional concepts like brand value and originality.
Others outright doubt the validity of such high expectations, going so far as to say that Beyond Meat, for example, shouldn’t be worth its estimated $12 billion market cap when compared with older companies with the same value, such as the American food giant the Campbell Soup Company. Commodities in particular have their own set of drawbacks, including being a highly-volatile market. Such volatility brings both opportunities and risk for traders who invest in price movement, as with CFDs, but before riding the market waves it’s worth taking the time to inform yourself of all the risks and benefits involved.
We’re not talking about that “I have so much energy, I could run a marathon!” feeling you get after your morning coffee, although if you could trade that, imagine what a great world it would be. The energy we’re focusing on here includes such commodities as crude oil (WTI Oil and Brent Oil among two of the most-traded), natural gas, gasoline and heating oil. Out of all the commodities out there, these are perhaps the most impactful on a daily basis, as energy prices essentially affect the cost of everything consumers interact with, from food production to the manufacture of electronic devices to the petrol we put in our cars to the oil we use to heat our houses. There are also loads of companies involved in this sector – mining companies, energy producers, storage and even alternative “green” energy companies such as solar panel makers, battling for a piece of the future.
Advantages: As with other instruments, the main advantages of trading energy commodities and shares (in the form of CFDs) include the ability to expose your portfolio to a diverse selection of market opportunities, as well as good, old-fashioned demand. As long as the world depends on these types of energies to function, the demand will remain in place. The market volatility of crude oil makes it one of the most popularly-traded commodities on the Vestle online trading platform, but other reasons for its prominence include its accessibility, reliability, and usefulness in industry around the world.
Disadvantages: A number of factors can affect the prices of energy commodities, from supply and demand to market sentiment to geopolitical tension to the weather. In the case of crude oil, ongoing political strife with Venezuela and Iran, two of the world’s most prolific suppliers of crude oil, has been blamed for drops in oil production. When it comes to natural gas, unseasonal temperatures—both higher and lower than normal—can affect demand which, in turn, affects its market price. So again, the same volatility that ranks as a potential disadvantage could, under the right trading conditions, turn out to present opportunities as well as risks.
The auto industry is always making headlines, whether it’s some scandal involving false emissions test results, some new electric model, or Elon Musk’s latest attempt to distract the public from the most recent spate of Tesla 3 delivery delays with a video of a near-perfect SpaceX landing in the middle of the ocean. The point: the popularity of the car isn’t going anywhere.
Riding high on the Vestle online trading platform are, among others, Aston Martin, Rolls Royce, Toyota, Fiat Chrysler, Ferrari, BMW and Tesla. The latter two deserve special attention for their industry ambition toward all-electric models, a growing trend all around the world. And with the Tesla Model Y and Roadster scheduled for a 2020 release, and BMW i series gaining more popularity by the day, things can only get more interesting. And let’s not overlook Ferrari’s most recent off-the-track performance, rising +78% between the end of 2018 to July 2019 after a strong 2018 earnings report came out in January.
Advantages: Considering that our ideas of a future filled with electric cars silently zooming up and down the street are already a reality may suggest the move toward electric models made by many companies is in direct response to a growing demand. There’s also the belief by some analysts that the world’s biggest auto companies are immune to failure, owing to their size.
According to Born2Invest, the number of people an auto company employs can number into the hundreds of thousands if you count those within the company itself as well as the extensive suppliers’ network. Employing this many people could mean the companies are too big to fail. Plus, they risk severe financial penalties for going under, which explains the 2009 government bailouts extended to both Chrysler and GM. Does this mean trading on the price movements of auto companies comes with any sort of guarantee? Absolutely not, simply that the likelihood that a major auto company will go under is slim.
Disadvantages: Some analysts cite sluggish economies around the world as the biggest challenge to the automotive industry today. “Global economic growth is slowing, leading to plateauing global auto sales”, said Chris Trompeter, managing director at Tradition Capital Management in the US. More locally, the threat of a no-deal Brexit has been blamed for plunging the UK car industry into a miserably low investment level of just £90m (down from previous levels of £2.5bn and £2.7bn). This follows a series of previous blows, including Honda announcing it will shut its Swindon factory in 2021 and Ford doing the same with its Bridgend engine plant in South Wales by September 2020. What that means for the future of the auto industry is uncertain, but with no answer to Brexit in sight, it’s worth staying tuned into the performance of your chosen automotive company.
The financial services sector comprises a number of banks, investment firms and insurance companies, well-known names you probably see every day: Lloyd’s, HSBC UK, IG, Barclays, ING Group and Mastercard. Companies whose business is essentially to manage money in some way, shape or form. This sector is usually dominated by massive conglomerate companies, but also includes a variable range of smaller companies, such as the many banking alternatives that have recently sprung up. The financial services sector is largely believed to reflect the health of the economy, which can provide a wealth of information to certain types of investors.
Advantages: The main advantages of trading on price movements within the financial services sector apply to the CFD trader who’s got an eye on value investing, which basically means they follow the performance of stocks whose market price don’t exactly reflect the business’ future cash flows. They believe their chosen instruments are worth more than their market value, and thus anticipate price movements in either direction as opportunities they can take advantage of.
Disadvantages: A number of money and economy-related factors can ultimately affect the companies within the financial services sector, including:
- rising interest rates, since rates that rise too quickly usually result in a demand for credit, which could have a negative impact on particular parts of the financial sector;
- if the spread between long and short-term interest rates drops too far, it could have a struggling effect on the financial sector;
- government legislation which, even though it aims to help protect consumers, can actually have an adverse effect by imposing too much red tape on businesses within the financial sector.
Technology is probably the most fun, at least in terms of practical application because it includes many companies whose sole purpose is to keep us entertained. We’re talking binge-watch giants like Netflix, social media outlets like Snapchat, Pinterest and Twitter, makers of millions of cool things with an “i” in the name Apple as well as Xiaomi, the Chinese electronics company that makes literally everything, from smartphones and TVs to those annoying electric scooters that, though illegal in the UK, seem to be popping up everywhere.
Advantages: It should come as no surprise that technology is the largest single segment of the market, presenting a huge investment opportunity to many types of traders all around the world. One standout advantage of trading within the technology sector is that it’s MO is focused on innovation, always creating something newer, bigger and better to replace older models. This has given the tech sector the characteristic of above-average growth rates, which has certainly caught the attention of some investors over the years.
Disadvantages: There are the school of investors, however, who are quick to point out that the tech sector has another above-average rating, that being the number of public companies that do not yet produce profits. With no track record an uncertain future, these investors aren’t willing to bet on public excitement alone and choose to steer clear of the entire technology sector altogether.
The bottom line
The stock trading industries presented here are just a handful of what’s out there. The contents of your CFD trading portfolio are yours to choose, and we’re not in the business of giving advice. At Vestle, what we are in the business of doing is offering a secure and reliable online CFD trading platform, where you can take as much time as you need to research and educate yourself about today’s financial markets and particular stock trading industries, and trade with confidence when you’re ready.
The materials contained on this document have been created in cooperation with Vestle and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 59.5% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money before investing in any of these stock trading industries. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer: https://www.vestle.co.uk/legal/analysis-disclaimer.html