A Beginners Look At ETF Trading PDF Print E-mail
Written by Patrick Deaton   
Monday, 30 November 2009 18:39
A person who has just been introduced to ETF trading will find that there is a lot to learn. There will be a different learning curve for an individual who is including ETFs in their mixed long term investment portfolio than for a person who trades daily. Many large companies have decided to include ETFs in their mixed portfolios for long term investors. This is because they provide the same kind of low risk, steady growth of other types of funds.
by PatrickDeaton


A person who has just been introduced to ETF trading will find that there is a lot to learn. There will be a different learning curve for an individual who is including ETFs in their mixed long term investment portfolio than for a person who trades daily. Many large companies have decided to include ETFs in their mixed portfolios for long term investors. This is because they provide the same kind of low risk, steady growth of other types of funds.

There are many advantages to using Exchange Traded Funds that are not available with mutual funds. The ETFs are followed just as mutual funds on the indexes such as S&P 500. There are many large institutional investors buying and selling the ETFs directly which lowers the cost of the funds to the investors who use these companies for brokerage services.

ETFs are traded in commodities or commodity-based instruments, publicly traded grant trusts, and securities. Most of the ETFs receive exemption from the SEC to act as an open ended management investment company. These allows them flexibility in constructing portfolios. They are can participate in securities lending programs. And, they can use futures and options to achieve investment objectives.

There is more flexibility afforded ETFs in the market as well. Unlike mutual funds, ETFs can be bought and sold throughout the trading day. They can also be sold short during the trading day. This gives a trader the advantage of being able to react immediately to changes in the market. Mutual funds can only be bought and sold at the end of the trading day. Even when an investor sees a trend reversing during the day with mutual funds, they are unable to act on it.

A person can buy on the margin, trade using the standard orders used on the market, and use hedging strategies. A regular ETF trader finds that the ability to act proactively during the trading day gives them much more opportunity to achieve gains when they are presented.

Whether there is active trading or not, the trader is provided with transparent portfolios that allow them to check their trades on a daily basis. Each ETF posts the details of the previous trading day on their website so a person can see the trading that has transpired each day on the website. The website also identifies the weight of the securities and other assets held by the fund.

The commission fee paid for brokerage is less than with mutual funds. This is in part due to the fact that ETFs do not have to cover the cost of stock purchase for businesses within a sector. Websites offering discount brokerage services may change as little as $3 per trade while some brokers charge up to $20 per trade.

The minimum investment required for most mutual funds is not present with ETFs. A person may begin trading with a minimal amount of money. However, most investors find that if they are going to do active trading, they want to diversity their sectors and have resources allocated evenly to cushion any losses in one sector.

Traders who actively trade on a daily basis often do not see the gains that occur with other markets. They often have not the analytical and historical research that is necessary to fully take advantage of opportunities that arise. By talking to traders and professionals about the systems and strategies available a person will find that they are able to learn how to create the greatest opportunities for gain in this fast moving market.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Learn how it's very possible to make 6% per month in your investment accounts using etf trend trading! "Big A" is a recognized expert in the world of etf trend trading system and reveals etf secrets that have been kept under wraps by hedge traders for years. Give him your email and get a free report and webinar today!