ETF Trading Strategies for Any Investor
We have mentioned about important information every investor should know about the hugely popular ETFs in our blog post.
ETF Trading Strategies for Any Investor
You may have heard of ETFs or SPXs, and some of you even have them in your portfolio. But many investors are not even aware of the various ETF trading strategies these assets offer. However, after reading the ETF trading strategies listed below, you will become a much more informed trader and know a lot more about investing.
- Invest in the Market with ETFs:
As an index, you can use ETFs to invest in the stock market or even play market volatility. There are ETFs for the NASDAQ like QQQQs. Like many SPDRs, there are ETFs for the S&P. It has a Dow Jones ETF (DIA). And for those looking to trade by market cap, there are quite a few ETFs and ETNs that track the CBOE Volatility Index (VIX). And you don't have to deal with these markets, there are just so many more markets waiting for buyers and sellers, and just as many market ETFs that follow them.
- Use ETFs to Expose an Industry:
Maybe you don't want to invest in a market as much as a particular industry. Do you think producing clean coal is the next “green” advancement? Maybe a coal mining ETF is the way to go. Whether it's financial, defence, utilities or even technology, buying an industry ETF is much easier than trying to corner the market in industry stocks.
- Invest in Commodities without Investing in Commodities:
Now let's admit it; We don't have a barrel of oil or a chest of gold in our basement. However, you do have room in your portfolio for commodity ETFs. You can buy a commodity ETF without stocking animals and get instant exposure to the commodity market. This is a much easier process and you don't have to water it.
- Foreign ETFs Give You Access to International Markets:
Foreign investment can become complicated. Currency adjustments, foreign tax laws and just general overseas challenges. However, there are ETFs that make international investment much easier. Foreign market ETFs, local currency funds, emerging market ETFs, broad foreign funds, and even ETFs that track countries like Brazil and China. There is no longer any reason to fear investing outside the US or any country. In short, the world is your ETF.
- Bond ETFs are the Gift that Keeps Giving:
Bond ETFs are a little more attractive than most investments because they not only trade in the secondary markets, they can also create a stream of income in your portfolio. Investing in bonds can feel a bit overwhelming in general. Coupon rates, default risk, duration. However, a bond ETF can alleviate some of this complexity by giving investors a pre-packaged asset that gives them instant access to the bond market.
There are varieties of ETFs known as ETNs; notes traded on the stock exchange. ETNs are assets issued by a large bank as senior debt securities, unlike ETFs, which consist of securities such as commodities, currencies, futures, futures and options. When you buy an ETN, you buy a debt asset similar to a bond, but the terms of the debt agreement are determined by the nature of the note. ETNs are backed by a bank with a high credit rating, so they are highly secure products. However, ETNs do not carry credit risk, just a lower level.
- Play the Currency Market with ETFs:
Bond ETFs and ETNs are two ways to play the interest rate market. But when it comes to foreign interest rate trading, look no further than currency ETFs. Whether you want to invest in a large currency holding, a regional currency like Europe, or even a single country currency. ETFs have you covered. Currency ETFs are an unavoidable way to hedge foreign risk, play foreign interest rates, or simply invest in foreign currencies.
- Playing ETFs on the Downside:
For every buy transaction, there is a sell transaction on the other side. Most people associate investing with purchasing, but this only covers 50% of every trade. Therefore, it makes sense to have ETFs created specifically for bearish investors.
It is possible to create negatives by selling any ETF. But what if I told you could buy an ETF and still be short on it? That's true, and it's called an inverse ETF. Perfect for traders who have restrictions against selling but want to cut short; they can buy an inverse ETF.
- Hedging Risk with ETFs:
Back to the topic that investing means buying. But a large part of the investment also hedges against risk. This is where ETFs can help. Do you have a broad, diversified portfolio that wins when the market goes up? Protect the downside by selling a market ETF. Too many oil stocks short? Buy an oil ETF to hedge your increased risk. A long index? Maintain your position by selling a basic ETF.
- Hedge Indexes with ETFs:
We have mentioned this issue above. But ETFs are a great way to hedge index positions. If you are a long index, you can make a counter trade to hedge your risk. Some indices have multiple ETFs tracking it, so opportunities can be plentiful when it comes to hedging your index risk. Trade an ETF to protect some or all of your index position, or in some cases put a similar index position using an ETF instead. After all, that's why they appeared.
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