Why Trade The ETFs?

mirriam maciwlliams etf

It was a lot of fun in our recent Smart Traders Live Webinar organised by Wealth Mentors . While it was a refresher for most it was a nice to see how to apply a set of parameters for an existing style of trading and use ETFs instead of stocks.

ETFs stand for Exchange Traded Funds.  They are “baskets” of trading nstruments that can be traded just like stocks.  There exists ETFs that can be traded if we expect the underlying to go up or we can buy an ETF that is designed to go up when the underlying drops in price.  There exists ETFs that are designated Pro-Shares which mean they generally have a multiplier and can return a move that is greater than the actual movement of a stock or sector.

There are ETFs on sectors of stocks (retail, banking, technology, etc.), Indices (Russell 2000, OEX 100, etc.), currencies (Euro, Yen, etc.) although these are not advisable since currencies trade 24-hours and can gap up or down, countries (China, India, etc.), bonds (TBT or TLT), commodities (agriculture, precious metals, etc.) and there are more popping on the scene almost every day.  They also have options associated with them although we do have to keep our eye on the Open Interest.

Since they are created by Fund Managers there are certain costs associated with their ownership.  That cost can vary so when buying the shares be mindful that if you are holding these shares with a longer term perspective the carrying costs can impact your bottom line.  These costs can be 2% or more in one year on some of these “hot” ETFs.

I myself prefer to trade the options instead. I will be in the trade for up to 3 weeks of time. Since these ETFs are a basket of stocks we are unconcerned with the Earnings of a stock, which gives us a lot more opportunities to trade.

I had quite a few cool examples at the Live Webinar. Smart Traders members feel free to review the parameters and these case studies on the recorded event and you will find yourself trading many more of these ETFs.