ETF Trading

By: EconomyWatch   Date: 30 July 2009

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EconomyWatch

The core Content Team our economy, industry, investing and personal finance reference articles.

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ETF trading involves buying and selling shares of exchange traded funds. ETFs aim at making profits by following an underlying index. ETFs are differentiated on the basis of their holdings or by the way they function.

Features of ETF Trading
 

As ETF trading is similar to stock trading, it features all the financial tools that a trader can use in stock trading, like:

  • selling short

  • limit orders

  • stop-loss order

  • buying on margin

  • Intra-day trading

Additionally, a trader can invest as little as he wants to.

 

Steps in ETF Trading
 

ETFs offer the advantages of index funds as well as of regular stocks. They can be bought and sold at any time, while they continue tracking a group of stocks.

  • The first step:An investor needs to set up an account with an investment management firm or a broker. Make sure to check the broker’s history and track record.

  • Brainstorm:Research on the various ETFs that are available and consult experts for this. Identify the trading style you are comfortable with and study the progress of the various ETFs on different websites and information platforms.

  • Identify the budget: Invest only what you can afford to lose. Use stop orders and other tools to sell or buy ETFs at the desired values.

  • Place your order at the right place:Often, the online platforms come with a time lag. Therefore, in such cases, place your orders with the brokers who have access to live platforms.

  • Keep studying the market and evaluate your ETFs:Subscribe to good newsletters, read ETF journals or consult your brokers for updated information on the market trends. Reform your strategy if the need arises.

 

ETF Trading versus Mutual Funds Trading
 

ETF trading offers many advantages over the conventional mutual funds trading due to its stock-like features. However, there are a few flipsides as well.

  • ETF trading attracts more brokerage. Thus, small investors can lose their profits in paying the commission. However, ETF trading becomes more attractive in times of commission discounts.

  • ETF trading attracts lower taxes in most countries. Thus, they are more economically viable than mutual funds.

There are many other advantages that either of the two has over the other. However, the convenience and flexibility offered by ETF trading have made exchange traded funds a popular choice among traders.


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