New Trading Opportunities By Trading Sector ETFs

Stock prices are piercing through all-time highs, and as they continue to climb, each sector is taking a turn to drive momentum.  While many CFD brokers offer exposure to U.S. stocks, there are few that are focused on sector performance.  One of the few agents is iforex broker, which is leading the move into CFDs that focus on exchange traded funds (ETF).

Sector ETFs

There are 4-sectors that are generally considered the drivers of growth and will carry the torch as the markets continue to climb. These sectors include, technology, energy, healthcare and financials.  While technology has been the biggest driver of stock prices, energy and financials have lagged, but as growth begins to perpetuate, and interest rates start to rise, financials and energy will grab the baton and lead the markets higher.

Technology shares, have been on a tear as, driven by semi-conductor stocks as the market sees continue growth driven by new technology such as self-driving cars and trucks, as well as, continued productivity driven by robots. Semi-conductors are the heart and soul of these business, and many of their components are incorporated into the iforex XLK ETF. One of the benefits of using the iforex ETF is that you can trade this product using leverage that is much higher than the leverage that you might be able to achieve if you purchased these charts with a stock broker. Stock brokers can offer 1.5 times leverage, which is much smaller than the leverage offered using CFDs.

Financial Shares have Underperformed

Financial shares have lagged the broader markets since tumbling during the financial crisis.  Since 2008, the ratio between the XLF (iforex financial ETF) and the SPY (which is the S&P 500 ETF), has tumbled 90%.  Financials have also underperformed in 2017, but are off their lows.  Financial have been trading under pressure as interest rates continue to remain subdued.  The Federal Reserve is within a tightening cycle, but the movements have been slow, which has allowed rates to remain depressed. The interest rate curve, which is short term rates minus long term rates, is narrow, which is not providing banks as spread that is large enough to generate strong gains.  Their valuations are nearly their book value, which is very low compare to historical numbers prior to the 2008 financial crisis.

One of the real benefits of trading sector ETFs is that you can speculate on the relative change in value of 2-ETFs. For example, you can purchase financials and sell healthcare, or buy technology and sell energy. These pair trades are market neutral, but the benefits can be substantial. You can use the iforex ETFs to generate these types of positions and not have to put up substantial capital on the long side and short side of a pair trade.

By using the iForex ETFs, you can drill down and take positions that focus on a sector as opposed to the broader market.  This can allow you to substantially beat average returns, if you believe that a sector will outperform.  The iForex ETFs will also allow you to trade pairs, betting that one sector will outperform another.