ETF Trading has grown in popularity in recent years as a new product
that offers advantages to traders that are looking for new asset
classes to trade and invest. ETF investing provides an opportunity for
investors to take positions in asset classes across commodities, real
estate, precious metals, sectors and foreign markets. ETF's are
structured for small cap exposure, large cap exposure, yield or index
composition. They are a convenient way to trade and invest in
commodities such as oil that would otherwise require taking positions
in futures or options.
ETF trading takes place on an exchange. In the US, exchange traded
funds are listed on AMEX and the NYSE. Investors can buy and sell ETF's
in the same manner that they purchase shares. This permits using ETF's
to trade, sell short or hedge. ETF trading can be integrated with
complex strategies, purchased on margin and traded using stop and limit
orders. ETF's are traded on a continuous basis throughout the day and
not restricted to once-off transactions. Price quotations can be
obtained on a real time basis allowing traders to make up to the minute
decisions.
Exchange traded
funds trading offer numerous benefits
and advantages. One of these advantages is diversification. ETF's offer
exposure to a wide variety of markets including: small cap, value,
large cap, broadly based international and country specific indexes
such as Brazil, China and India and sector specific indexes such as
energy, healthcare and real estate. Investors can also gain exposure to
a basket of commodities, treasury bonds, corporate bonds, and
commodities such as gold, silver and oil.
Investors can also
invest in ETF's to gain exposure to a
basket of high paying dividend stocks. Dividends collected by ETF's on
stocks and interest on bonds are distributed to ETF holders on a pro
rata basis. ETF traders that want to capitalize on potential growth and
capture income can examine ETF's as part of an ETF strategy or ETF
trading system.
Exchange traded
funds can be used as part of a hedging
strategy. For investors that are long core holdings and want to hedge
from short term market corrections or insulate against interest rate
fluctuations, ETF's provide a vehicle to protect a portfolio from
losses. Some ETF's also have listed options which are an additional
avenue available for hedging or generating income.
Unlike mutual
funds, ETF trading does not encounter
redemption fees, short term restrictions or upfront access fees. For
any serious investor or trader, ETF's are well worth considering to add
an additional dimension to their trading and investing.