The stock market can present numerous opportunities, with its high level of liquidity and volatility. There are various ways traders can access the market, through a stock exchange, over the counter, or through contracts for difference (CFDs), for example.
One of the key elements of stock trading is to have a diversified investment portfolio. This can be through the way you access the market, such as stock CFDs, or through trading in different stock sectors.
The sectors categorise the stocks based on their similarities or the industry they belong to, with the idea that their price movements will be relative to each other.
There are currently 11 stock sectors in the industry classification system, and these are:
- Energy
- Materials
- Industrials
- Consumer Discretionary
- Consumer Staples
- Health Care
- Financials
- Information Technology
- Communication Services
- Utilities
- Real Estate
To help you decide on the industries to speculate on, we’ll explore further the most traded stock sectors.
Technology
Stocks from the technology sector have grown in popularity over the past decade. It includes companies that focus on technological hardware, software, manufacturing, or providing technology-based services.
The tech sector can often experience volatility, as it consists of fast-growing companies with continuous developments in their field. The most notable stocks in this sector are Google (GOOGL.US), Apple (APPL.US) and Facebook (FB.US).
Financials
The financial sector including 17 sub-industries is one of the largest sectors in the stock market.These stocks relate to a wide range of companies encompassing all things money and finances — from banks and insurance brokers to mortgage lenders and consumer finance providers.
Some of the most popular stocks in this sector are Mastercard (MA.US) and Lloyds Bank (LYG.US). It is considered to be a fairly stable industry to invest in, experiencing less fluctuation in prices compared to other stock sectors. However, this sector has an intrinsic relationship with the respective economy, and in turn the foreign exchange (forex). Therefore, traders looking to financials will also be monitoring the impact of the release of economic data and events.
Energy
A popular sector linked to another financial market — commodities — the energy sector includes shares of companies which extract or produce globally important commodities such as businesses associated with crude oil, natural gas or electricity. It does not include renewable energy companies at the moment, which are instead categorised as utility stocks.
Although there are seven sub-industries in the energy stock sector, it is in fact, large oil companies which make up the majority, including most notably, Royal Dutch Shell A (RDS.US).
Therefore, traders investing in energy shares should be up-to-date with movements in both the stocks and commodities market.
The energy sector is influenced by similar factors that impact the commodities market, such as geopolitical events, and the balance between supply and demand of the underlying commodity. It is also closely linked to the price of crude oil, understandably. As a result, this sector can be highly volatile in certain circumstances.
However, on the whole, the energy sector is usually seen as a relatively stable investment.
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Industrials
Another large stock sector, industrials is made up of three industry groups and 25 sub-industries. It includes,but is not limited to, construction and machinery companies, as well as defence and aerospace corporations. This sector is also closely tied to the health of the economy, and the industrials’ value tends to fall during periods of recession.
Moreover, this sector consists of transportation stocks such as logistics companies, railroads and airlines — which have been heavily impacted by the travel restrictions enforced as a result of the coronavirus pandemic.
If you are interested in stocks of a certain sector, then it’s always best to conduct extensive research of the industry, and the factors which can make an impact, before you invest. Trading across the different stock sectors, as well using financial derivatives such as CFDs, can also help you to mitigate the level of risk, or hedge against any losses you may incur.
Not investment advice. Past performance does not guarantee or predict future performance.
