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What is the September Effect?

The September effect is a market anomaly where traditionally, stock markets underperform, and share prices end up lower on average.

 

Excluding the New Year period, September is by far linked to the biggest number of clichés when it comes to resolutions: September is a time for a change, September is the best time to start a new routine, to buy a car, to get a gym membership.

 

It probably has something to do with the after-holiday psychology. Once we charge our batteries and clear our heads, we feel ready to move forward. Yet, September is also linked to high costs, such as schooling and that gym membership we mentioned earlier. It also means less free time as we are trying to put our decisions into effect. 

 

All the above are considered to create the so-called ‘September Effect’ in markets. However, the September Effect is more of a pattern than it is a phenomenon. 

 

Market analysts have observed that the stock market’s three leading indices (S&P 500, Dow Jones Industrial Average (DJIA) and Nasdaq Composite) typically perform poorest during September. What’s more, data analysis has shown that global share prices have fallen in more than half of the last Septembers.   

 

However, many traders question whether the September effect is real or just an urban financial legend. As with many other calendar effects (any market anomaly or seasonal behaviours), the causal relationship is difficult to verify. 

What is the September Effect?

“Remember, remember the effects of September”

The September Effect is associated with equity markets worldwide, while analysts attribute it to seasonal behavioural bias. 

 

For many people, September usually means a smaller budget (those £15 Tiki cocktails on your summer holiday may or may not be responsible for burning a hole in your pocket). However, the effect is felt not only with smaller budget traders but big funds too.

 

For example, investors often switch up their portfolios at the end of summer to cash in. During the summer months, the traded volumes are thinner as many investors usually refrain from actively trading. Once they return to work, they return to trading. As a result, the market experiences increased selling pressure and, therefore, an overall decline.

 

Also, many mutual funds cash in their holdings to harvest tax losses as they experience their fiscal year-end in September. Interestingly, there appears to be no particular market events or news contributing to this market anomaly.  

 

Since their establishment, the DJIA has declined by 0.8% on average in Septembers, the S&P 500 by 0.5%, and the Nasdaq also by 0.5%.

 

As it doesn’t happen every single year, the September Effect must not be used to predict the market movement. Besides, traders should focus on more than just seasonal patterns to make predictions and test their strategies. 

 

However, traders might find the September Effect an exciting opportunity to watch the S&P 500, Nasdaq 100 and DJIA. Our guide, Indices trading, explained, is the perfect starting point to get started with the market. 

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A history of Bitcoin’s ups and downs

If you are a huge pizza fan, you already know that you can celebrate with your cheese-pepperoni doughy friend twice a year! “Twice?” you ask. “How’s that?”

 

Well, as well as Pizza Day (9th February), where foodies worldwide glorify the Italian delicacy, May 22nd is celebrated as Bitcoin Pizza Day. You see, on this day in 2010, a programmer from Florida successfully traded 10,000 bitcoins for two Papa John’s Pizzas.

 

Fast-forward to the future, Bitcoin (or BTC) is the world’s first-born digital currency. Launched in 2009, it has paved the way for the crypto (r)evolution. However, there is still a cloak of secrecy over the identity of its creator(s), Satoshi Nakamoto (most likely a pseudonym). 

 

Today, Bitcoin is the most popular cryptocurrency. In many countries and online, you can use Bitcoin to buy products and services as you would with traditional currencies.

 

By design, Bitcoin’s supply limit is $21 million, meaning the currency cannot be devalued in the same way a conventional currency can. Bitcoin has asserted its dominance over other cryptocurrencies, collectively named altcoins (i.e., bitcoin alternatives).

 

Cryptocurrencies are highly volatile as they are backed by peer-to-peer technology and not controlled by any central authority, government or organisation. As a result, almost anything can move their price.  

A history of Bitcoin's ups and downs

So what causes Bitcoin's rise and falls?

A series of unfortunate events can cause a huge crash for Bitcoin’s price. But, also, a series of fortunate events can make it soar. Let’s explore some of the events fuelling Bitcoin’s ups and downs. 

 

Supply and demand

Cryptocurrencies are subject to cycles of high public interest, and when demand for crypto is high, its price dramatically increases. Bitcoin’s supply is limited, marking its deflationary character and providing one more reason for its growth.

 

Fiat crises

When conventional currencies face a crisis, cryptocurrencies come to the fore as they are decentralised – especially bitcoin. When investors lose interest in a fiat currency, they resort to bitcoin or its rivals, pushing up the price.

 

Regulation or market manipulation

Government bans, and even regulation or taxation discussions over cryptocurrencies, decrease their value. Restrictions make potential buyers considerably reluctant to buy, and thus the demand goes down.

 

Crisis of confidence due to bad publicity

Cryptocurrencies’ prices are sensitive to both good and bad news, mainly because they are not regulated. Media plays a massive part in people’s perception of crypto – any story about a real-world application that goes viral drives Bitcoin’s price.

 

Security breaches

The digital and unregulated nature of cryptocurrencies makes them vulnerable to hackers. Each time a hackers’ attack occurs, it undermines the reliability of the cryptocurrency. For example, Bitcoin’s value dropped immediately and dramatically in 2014 when hackers attacked Mt. Gox (a Japanese BTC exchange) and stole plenty of coins. 

 

A timeline of Bitcoin’s peaks of fame (not so glorious days included as well)

2008 – A white paper called Bitcoin – A Peer to Peer Electronic Cash System was posted under the name Satoshi Nakamoto, describing how Bitcoin would work.

 

2009 – The Bitcoin software is made available to the public for the first time. Mining – the process by which new bitcoins are created and entered into circulation – begins too.

 

2010 – Bitcoin is valued for the first time: two pizzas for 10,000 BTC (reminder for pizza lovers: you can celebrate Bitcoin Pizza Day on May 22nd!). This purchase is the first known bitcoin transaction offline and in the real world. Following its popularisation, its first correction takes place. It lasted more than 23 days. 

 

2011 – Altcoins emerge as the logical consequence of Bitcoin’s popularity. Today, there are over 4,000 cryptocurrencies in circulation, with new ones frequently appearing among dedicated communities of backers and investors. 

 

April 2011 Time and Forbes discuss Bitcoin for the first time, and its popularity grows. In June, a little bit later, Bitcoin’s price jumped from $1 in April to a peak of $32, a gain of 3,200%.

 

2013 – While at the end of 2013, the US Senate had recognised Bitcoin’s potential, China started to impose restrictions on its use. Shortly after reaching $1,000 per Bitcoin for the first time, the price soon began to decline and finally crashed by 87%. 

 

2014 – The world’s largest Bitcoin exchange, Mt.Gox, went offline, and 850,000 Bitcoins disappeared. It was one of the biggest hacks in the history of Bitcoin. 

 

2016 – There are trends towards a revival of the crypto industry following Bitcoin’s correction in 2015. 

 

2017 – Bitcoin grows 1950% from $974 to $20,000. Its growth was credited to its continued growth in popularity and the emergence of more and more uses. Banks began to investigate ways they might be able to work with Bitcoin. 

 

2018 – Oh my! A terrible year for Bitcoin. From an all-time high (ATH), Bitcoin lost 83% of its value. Its price moved sideways for the next two years.

 

2020 – The world economy shuts down due to the pandemic, and Bitcoin comes back to life – a total recall. Bitcoin’s price reached just under $24,000 (a record price) in December 2020, increasing by 224% from the start of 2020 when it was $7,200.

 

2021 – Bitcoin had its best day in April when it smashed all previous price records and reached more than $64,000. 

 

We’re guessing that now, you might have an appetite for high volatility and speculative trading? Great! We’re here to support you and empower you to trade up. If you need some more information on how to trade cryptocurrencies, our intro to crypto trading is an excellent place to start. 

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What are the 11 stock market sectors today?

While searching for the best title for this blog, we decided to add the word today. Why? Because the stock market sectors are revised from time to time in keeping with market trends. If this blog post were written back in 2015, the stock market sectors would be only 10. The real estate sector was the new entry in 2016 when the need for a separate sector was identified. 

 

Let’s look at why the stock market is broken down into sectors by defining what a stock market sector actually is. Stock market sectors are broader than industries. In particular, a stock market sector is a set of companies with similar business activities in direct competition with each other. 

 

In general, we broadly classify businesses into three sectors: manufacturing, financial services and technology.

 

There are various classifications systems, with Industry Classification Benchmark (ICB) and Global Industry Classification Standard (GICS) being the most commonly used. GICS was developed in 1999 by the two leading index providers: Standard & Poor’s (S&P) and MSCI (formerly Morgan Stanley Capital International). Its alternative, ICB, was created in 2005 by Dow Jones & FTSE. 

 

The most popular of the two, GICS, is a classification system using codes to sort publicly traded companies into sectors based on their primary business activity. 

 

The 11 GICS sectors are further segmented into 24 industry groups, 69 industries and 158 sub-industries.  

What are the 11 stock market sectors today?

Understanding sector breakdown

There are various benefits and reasoning behind breaking the market down into sectors. In trading, the primary use of this breakdown is portfolio diversification. One of the top tips for choosing stocks is to pick an industry and then learn its leaders, trends and strengths.

 

In the decision-making process, it’s essential to know each company’s business model when exploring growth prospects. Classification facilitates comparing companies with similar activities and, subsequently, the allocation of funds within a portfolio. 

 

Not only that, it allows detailed reporting and stock monitoring while making it easier to keep out undesirable industries.  

 

However, you mustn’t get too tied to the classification. Sometimes, larger companies are active in multiple industries. So, make sure you’re always looking at the bigger picture of what a company does and consider its stage in the business cycle.

 

Moreover, keep in mind that various market sectors may be affected differently by volatility. Also, look beyond size, and consider how well one sector performs against another.

 

The 11 GICS stock markets sectors and their 69 industries
  • Informational Technologies (6): IT Services, Software, Communications Equipment, Technology Hardware, Storage & Peripherals, Electronic Equipment, Instruments & Components and Semiconductors & Semiconductor Equipment.

Stand-out stocks*: Hp Inc [US] (NYSE:HPQ.N), Zoom Video Communications Inc [US] (NAS:ZM.O), Intel Corp [US] (NAS:INTC.O)

 

  • Healthcare (6): Health Care Equipment & Supplies, Health Care Providers & Services, Health Care Technology,  Biotechnology, Pharmaceuticals and Life Sciences Tools & Services.

Stand-out stocks*: Moderna Inc [US] (NAS:MRNA.O), Sanofi [France] (PAR:SASY.PA), Danaher Corp [US] (NYSE:DHR.N)

 

  • Financials (7): Banks, Thrifts & Mortgage Finance, Diversified Financial Services, Consumer Finance, Capital Markets and Mortgage Real Estate Investment Trusts (REITs).

Stand-out stocks*: JPMorgan Chase & Co [US] (NYSE:JPM.N), Paypal Holdings Inc [US] (NAS:PYPL.O), Berkshire Hathaway Inc [US] (NYSE:BRKB.N)

 

  • Consumer Discretionary (11): Auto Components, Automobiles, Household Durables, Leisure Products, Textiles, Apparel & Luxury Goods, Hotels, Restaurants & Leisure, Diversified Consumer Services, Distributors, Internet & Direct Marketing Retail, Multiline Retail and Specialty Retail.

Stand-out stocks*: Nike Inc [US] (NYSE:NKE.N), Starbucks Corp [US] (NAS:SBUX.O), McDonald’S Corp [US] (NYSE:MCD.N)

 

  • Communication Services (5): Diversified Telecommunication Services, Wireless Telecommunication Services, Media, Entertainment and Interactive Media & Services. 

Stand-out stocks*: Netflix Inc [US] (NAS:NFLX.O), T-Mobile Ltd [US] (NAS:TMUS.O), Facebook Inc [US] (NAS:FB.O)

 

  • Industrials (14): Aerospace & Defense,  Building Products, Construction & Engineering, Electrical Equipment, Industrial Conglomerates, Machinery, Trading Companies & Distributors, Commercial Services & Supplies, Professional Services, Air Freight & Logistics, Airlines, Marine, Road & Rail and Transportation Infrastructure. 

Stand-out stocks*: Fedex Corp [US] (NYSE:FDX.N), 3M Co [US] (NYSE:MMM.N), Caterpillar Inc [US] (NYSE:CAT.N)

 

  • Consumer Staples (6): Food & Staples Retailing, Beverages, Food Products, Tobacco, Household Products and Personal Products.

Stand-out stocks*: Target Corp [US] (NYSE:TGT.N), Procter & Gamble Co [US] (NYSE:PG.N), Estee Lauder Cos Inc [US] (NYSE:EL.N)

 

  • Energy (2): Energy Equipment & Services and Oil, Gas & Consumable Fuels.

Stand-out stocks*: Exxon Mobil Corp [US] (NYSE:XOM.N), Chevron Corp [US] (NYSE:CVX.N), BP Plc [UK] (LSE:BP.L)

 

  • Utilities (5): Electric Utilities, Gas Utilities, Multi-Utilities, Water Utilities and Independent Power and Renewable Electricity Producers.

Stand-out stocks*: Evergy Inc [US] (NYSE:EVRG.N), NextEra Energy Inc [US] (NYSE:NEE.N), American Water Works Co Inc [US] (NYSE:AWK.N)

 

  • Real Estate (2): Equity Real Estate Investment Trusts (REITs) and Real Estate Management & Development.

Stand-out stocks*: Welltower Inc [US] (NYSE:WELL.N), American Tower Corp [US] (NYSE:AMT.N), Digital Realty Trust Inc [US] (NYSE:DLR.N)

 

  • Materials (5): Chemicals, Construction Materials, Containers & Packaging, Metals & Mining, Paper & Forest Products.

Stand-out stocks*: Rio Tinto Plc [UK] (LSE:RIO.L), Linde PLC [Germany] (ETR:LINI.DE), International Paper Co [US] (NYSE:IP.N)

 

*Per Market Cap

 

We’re guessing that now you might want to build a diversified portfolio to trade, including stocks from different sectors? Find your perfect match by choosing from our tens of thousands of stock CFDs

Trade across five asset classes and enjoy Eurotrader’s competitive spreads and fast execution in every market. Over 2,000 instruments in forex, cryptocurrencies, stocks, commodities, and indices are ready for you when you are.

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What costs are involved in CFD trading?

Surprises can be very hit-and-miss. Some people love a surprise, some people loathe a surprise. Of course, it depends on the type of surprise you get – a winning lottery ticket is far more welcome than coming home to find your dog has torn your sofa to pieces. Perhaps something everyone can agree on, however, is that nobody likes a surprise that leaves you out of pocket.

 

If you’re new to CFD trading, you might not be aware of some of the associated costs that come with carrying out a trade. These fees can vary from broker to broker (so you should always check and choose carefully!), but it’s worth getting to know the transactional costs out there. That way, you can avoid any unwanted surprises and also plan your budget accordingly.

 

So, what do you need to look out for?

“It takes money to make money.”

There are two types of fees you might be subject to when you carry out a trade: trading fees and non-trading fees.

 

Trading fees are charged when you carry out a trade. Let’s take a look at some of the most common trading fees you might encounter. 

 

Many brokers will charge commissions for the use of their services, usually amounting to 0.1-2% of the trade’s underlying value. However, some brokers will offer zero-commission trading on certain securities; for instance, with Eurotrader, all stock CFDs are completely commission-free!

 

Traders will also typically have to pay spreads. This refers to the difference between the buy (bid) and sell (ask) price, and it reflects the supply and demand of a specific asset. Typically, higher volatility will lead to wider spreads (which are more costly), and lower volatility will result in narrower spreads. 

 

Some brokers might charge conversion fees if you trade, deposit or withdraw money using a currency that needs converting. For example, if your account is EU-based, but you deposit money from your US bank account, the broker will have to convert your dollars to euros to complete the deposit, and they may charge you for this process. 

 

Note: we at Eurotrader don’t charge conversion fees. Rather, we do conversions at spot market price – but be careful, as you may be charged conversion fees by your bank!

 

If you hold positions overnight, you may be charged an overnight fee. This is a daily cost that is calculated based on the size of the trade itself. More common in leveraged trading, these overnight fees are often referred to as ‘swaps’. However, some religious beliefs inhibit the payment or receipt of interest of any kind, which is why some brokers will offer swap-free accounts.

 

Now, let’s look at non-trading fees. These are the charges incurred which are not directly related to trading itself.

 

For instance, depending on your broker, you might need to pay a monthly account fee. Similarly, if you’re subscribed to any additional services (such as data feeds, VPS services, etc), you’ll often have to pay for a subscription.

 

Furthermore, some brokers will charge for withdrawals and deposits. These costs may vary depending on the method(s) used.

 

Finally, you should also check for whether your broker charges inactivity fees – the last thing you want is to take a break from trading, only to return to a charge you’ve not considered! Any brokers that do charge inactivity fees will specify the time period this will come into effect, so you can plan accordingly.

 

Eurotrader fees

 

Eurotrader has thousands of US, UK and European stock CFDs for you to trade, COMMISSION-FREE! Check out our product listings here.

 

We also don’t charge conversion fees (we do conversions at spot market price), account fees or inactivity fees!

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Why and when should you rebalance your portfolio?

Imagine you are at your favourite ice cream parlour, and you have to choose scoops of ice cream that will accompany your crispy cone. You want them all. But how many scoops can balance on the cone? Although there is evidence that you could stuff about 21 scoops (we’ve tested that for you), it doesn’t mean you should. Why? Because all your scoops will begin to melt and be challenging to maintain. Instead, they will end up on your t-shirt, and you will end up dirty and broken-hearted. 

 

The same applies to your trading portfolio. Building and maintaining a portfolio is not an easy task, as it involves research, targeting and decision-making. One of the main aspects of portfolio management is reducing the risk involved in trading (therefore allowing you to enjoy trading a bit more, too!). 

 

Portfolio rebalancing is one of the portfolio management procedures where risk mitigation is achieved through the reallocation of the trading assets.

 

By rebalancing your portfolio, you can keep the desired level of risk and control in a better way your emotions, for example, when volatility keeps you up at night. 

 

To enjoy both a good night’s sleep and your trading activity, line up your investment with your goals and rebalance your portfolio from time to time. 

 

When you rebalance your portfolio as a trader, it means that you have to: 

  • Firstly, ensure that your portfolio isn’t dependent on the success or failure of a particular asset class or fund type.
  • Mix various assets as per your trading style, goals and money you can afford to lose, i.e. your risk tolerance.  
  • Add and remove assets in your basket or allocate additional funds to specific assets you are already trading. 

Why and when should you rebalance your portfolio?

“Balance is not something you find. It’s something you create.”

When is the right time to rebalance my portfolio? 

 

While there is no standard schedule for rebalancing a portfolio, experts recommend examining allocations quarterly or at least once a year. Then, of course, you may restore the balance only when you feel that the allocations are significantly off track. 

 

Another strategy, apart from reviewing the portfolio in predetermined time intervals, is to check it whenever the trading conditions change or your portfolio has become unbalanced. For example, if your risk tolerance or investment strategies have changed, the time to reshuffle the cards has come.  

 

As stock performance can vary dramatically, the percentage of assets associated with stocks will change with market conditions. Therefore, when the market moves significantly, you may need to rebalance the weights to match your target asset allocation. A quick reminder: past performance is not always an indication of future performance. 

 

The same applies when the stock percentage of your portfolio has grown considerably in value. Depending on market performance, you may find a large number of current assets held within one area.

 

Another case is when your financial needs have changed. Then, you may adjust the overall risk to meet such changing financial needs along with the performance variable. Another right timing for rebalancing your portfolio is when you can sell high and buy low. 

 

We’re guessing that now you might want to check new assets to rearrange your portfolio. How about exploring Eurotrader’s instruments and spreads? Trade across five asset classes and enjoy Eurotrader’s competitive spreads and fast execution in every market. We’ve got over 2,000 instruments in forex, cryptocurrencies, stocks, commodities and indices that are ready when you are.