How to Successfully Trade ETFs

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How to Successfully Trade ETFs

June 1st, 2010 · Dallas TX, USA -

Meaning of Exchange Traded Funds

Exchange Traded Funds is similar to a mutual fund but has an exceptional feature of being traded in a stock exchange. An ETF is a portfolio that invests in different asset classes like equities, bonds and commodities. It is a fund which is listed in a stock exchange.


Most of the ETF track the Index such as S&P 500. Most popular ETFs are QQQs (Cubes) based on the Nasdaq-100 Index, SPDRs (Spiders) based on the S&P 500 Index, iSHARES based on MSCI Indices. The price of an ETF fluctuates according to the buying and selling pressure. ETF can be used for long term as well as short-term investments. If an investor is bullish on the market, then he can buy an Index ETF and no need to do trade on individual stocks.

How to Successfully Trade ETFs

• The first requisite is to open a broker account for trading ETF.
• An investor needs to do proper research on the various ETFs floating in the stock exchange.
• A broker can be consulted before investing in ETF.
• An investor needs to enhance his knowledge on the current economic scenario. The stock market is directly related to the economy of a country. Favourable news will act as a catalyst to move the market upwards whereas unfavourable news might slowdown the market movement.
• The performance of Exchange Traded Funds should be tracked regularly to trade successfully.
• Financial Information of an ETF needs to be regularly viewed. This helps the investor to know the fund in a better manner and it can also help to forecast its potential growth.

Purpose of Exchange Traded Funds

• It is a low cost investment compared to mutual funds.
• ETF helps the investors to gain tax efficiency.
• Investment in individual stock can be more risky than ETF. ETFs help to diversify risk.
• ETF has similar features like stock. This can be bought and sold like a stock.
• An investor can limit its order and minimum lot size is one unit.
• An investor can directly invest in gold by buying gold ETFs without holding it physically.

Tags: Day Trading · EFTS