|
ETF Trading Basics: The Advantages |
|
Written by Patrick Deaton
|
|
Saturday, 07 November 2009 08:20 |
|
Most people are just learning about ETF trading. Many have only heard bits and pieces about the Exchange-Traded Funds market and how it works. This is an incredibly complex market that a person will want to learn and get comfortable with before beginning trading in earnest. This is a brief overview of the benefits of ETF trading that may encourage a person to look into the market more closely.
by PatrickDeaton
Most people are just learning about ETF trading. Many have only heard bits and pieces about the Exchange-Traded Funds market and how it works. This is an incredibly complex market that a person will want to learn and get comfortable with before beginning trading in earnest. This is a brief overview of the benefits of ETF trading that may encourage a person to look into the market more closely.
Usually when someone talks about the "history" of a company, business, or market, people automatically think a long time. This is not the case with ETF. ETF became actively-managed in 2008. The "history" that ETF has is the relationship with the financial firms that are the major financial firms with a long history who are ETF leaders. By looking at these firms history with stocks, one can surmise that ETF will have a solid growth.
The next important item to know is that this industry is growing like crazy. In 2008 there were 628 ETFs with $562 billion, in August of 2009 there were 858 ETFs with $674 billion. With the growth has come many different types of ETFs that range from minimally risky to very risky.
ETFs are a lot like stocks in terms of ETF trading and have some distinct advantages. They are normally low cost and not actively-managed. There is no buying and selling of securities to accommodate shareholders. There are lower marketing, distribution and accounting expenses. And, most don't have 12b-1 fees.
ETF trading provides more flexibility in buying and selling than stocks. A trader can buy and sell ETF stocks at any time during a day of trading. They can use limit orders, stop-loss orders, stop orders, etc., just like stocks. A trader can purchase shared on margin then sell short to incorporate hedging strategies effectively.
There is the same tax efficiency that is found with mutual funds. They generate relatively low capital gains because there is low turnover in portfolio securities. ETF trading provides market exposure and diversity that allows an investor an economical way to balance portfolio allocations. And, finally, whether the ETF is indexed or actively-managed there is transparency.
Most ETFs are structured as open-end management investment companies. They must get an exemption from the SEC for form the company and are structured the same as mutual and money market funds. This gives the ETF flexibility when constructing their portfolio. The ETF can use futures and options to achieve investment objectives and participate in lending programs. The SEC has a proposal to make ETFs open-end management investment companies which will alleviate the need to get an exemption.
An individual considering ETF trading will want to become very knowledgeable in every aspect of trading. By contacting a professional who has expertise in the details and intricacies of ETF trading a person will be able to make the decisions and create a strategy that will help them to be successful in their trading endeavors.
About the Author:
Learn how it's very possible to make 6% per month in your investment accounts using etf trading! "Big A" is a recognized expert in the world of etf trading system ... reveals trading ... investment secrets that have been kept under wraps by hedge traders for years. Get his free report ... webinar today! |
