Subscribe Feed (RSS)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.
There are many benefits to ETF trading but a person needs to know that the “history” referred to in ETF is relative. The major players in ETF trading are large financial firms that have a strong history and background in the stock market. ETF itself began being actively-managed in 2008. When one looks for a “history” of success with ETF they will want to look to the firms that have a history of success on Wall Street.
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.
Among the benefits of ETFs is their likeness to stocks. The difference is that they are usually less expensive and are not actively-managed. Buying and selling of securities to accommodate shareholders does not take place with ETFs. Most ETFs don’t have 12b-1 fees. And, there are lower distribution, accounting, and marketing expenses.
A person moving from stock trading to ETF trading will notice a distinct increase in the flexibility of buying and selling. ETFs are bought and sold at any time during the trading day. A trader can buy shares on margin and sell short to employ hedging strategies. Many of the stock trading benefits come with ETFs. A trader can use limit orders, stop-loss orders, buy on margin options, etc.
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.
The SEC provides an exemption in order for an ETF to be structured. Most are open-end management investment companies just as money market and mutual funds. This gives them greater flexibility in portfolio construction. ETFs participation in lending programs. They also use futures and options to achieve investment objectives. There is a proposal being considered to create an ETF category so that they will no longer need an exemption from the SEC.
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.
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