Exchange Traded Funds (ETFs) are a great tool for the retail traders. ETFs enable you to trade a variety of markets and sectors individually or with options. ETFs are a recent financial innovation that has become highly popular with the investing public. An Exchange Traded Fund (ETF) is typically designed to track a particular index or segment of the market. An ETF is a security that is made up of different component stocks, bonds, currencies or commodities.
ETFs volatility is less than that of its component stocks, bonds, currencies or commodities as ETFs track a group of securities. So ETFs can also reduce volatility. With ETFs you can also implement strategies previously only available to large investors. ETFs enable you to reduce risk by offering unleveraged access to certain asset classes.
If you are looking for a segment of the market to invest or trade, there is a good chance that an ETF will be available that will fit your requirements. There has been an explosive growth in ETFs. So dont hesitate seeking an ETF for a market you wish to trade. ETFs are similar to a mutual fund. ETFs trade like a stock which means you dont have to wait till the end of the day to exit a position.
So ETFs are easy to understand. They give you intraday trading access. They have a low cost as compared to mutual funds and there are no short selling restrictions on ETFs. Most ETFs are based on a specific index like the S&P 500 index. Many ETFs are passively managed. So you should always check the ETF prospectus to check which index it tracks. Some recent ETFs are actively managed. ETFs have tax advantages as well.
ETFs trade on major US stock exchanges. Buying and selling ETFs is like buying and selling stocks. ETFs popularity has also given rise to the availability of research and scanning tools for ETFs on brokers websites.
You can combine ETFs and options. This means options contract are also available for some ETFs. As the initial investment is reduced, this way you can use ETF options to reduce risk further. You may ask what the difference between index options and ETF options is as most of the ETFs track some index. The two products differ in three main ways:
1) Index options can be European Style or American Style while ETF options can only be American Style.2) ETF options have an underlying security that you can own; they lend themselves to combination strategies. 3) Index options are cash settled while the ETF options are settled using the underlying security.
You have access to an index based security that you can protect as well as reduce its cost when combining ETFs with ETF options. ETF options are pretty natural next step for you if you have traded stock options. However, as with stocks not all ETFs have options available for trading.
Just like with ordinary options contracts, you can use the covered call, collared positions or protective put to manage risk with ETF options. But not all ETFs have options contract available for trading! If ETF options are available check how liquid the fund and the options contract are. - 29866
ETFs volatility is less than that of its component stocks, bonds, currencies or commodities as ETFs track a group of securities. So ETFs can also reduce volatility. With ETFs you can also implement strategies previously only available to large investors. ETFs enable you to reduce risk by offering unleveraged access to certain asset classes.
If you are looking for a segment of the market to invest or trade, there is a good chance that an ETF will be available that will fit your requirements. There has been an explosive growth in ETFs. So dont hesitate seeking an ETF for a market you wish to trade. ETFs are similar to a mutual fund. ETFs trade like a stock which means you dont have to wait till the end of the day to exit a position.
So ETFs are easy to understand. They give you intraday trading access. They have a low cost as compared to mutual funds and there are no short selling restrictions on ETFs. Most ETFs are based on a specific index like the S&P 500 index. Many ETFs are passively managed. So you should always check the ETF prospectus to check which index it tracks. Some recent ETFs are actively managed. ETFs have tax advantages as well.
ETFs trade on major US stock exchanges. Buying and selling ETFs is like buying and selling stocks. ETFs popularity has also given rise to the availability of research and scanning tools for ETFs on brokers websites.
You can combine ETFs and options. This means options contract are also available for some ETFs. As the initial investment is reduced, this way you can use ETF options to reduce risk further. You may ask what the difference between index options and ETF options is as most of the ETFs track some index. The two products differ in three main ways:
1) Index options can be European Style or American Style while ETF options can only be American Style.2) ETF options have an underlying security that you can own; they lend themselves to combination strategies. 3) Index options are cash settled while the ETF options are settled using the underlying security.
You have access to an index based security that you can protect as well as reduce its cost when combining ETFs with ETF options. ETF options are pretty natural next step for you if you have traded stock options. However, as with stocks not all ETFs have options available for trading.
Just like with ordinary options contracts, you can use the covered call, collared positions or protective put to manage risk with ETF options. But not all ETFs have options contract available for trading! If ETF options are available check how liquid the fund and the options contract are. - 29866
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Know Swing Trading. Learn Forex Trading!
