ETF Trading

ETF Trading Strategies

Exchange traded funds are listed on the stock market exchanges and they trade just like shares of stock. They are becoming more and more popular among investors because you can buy them on margin or they can be shorted. They can also be optioned and they make very nice hedge investments when ETF trading. Like stocks you can buy them or sell them at any point during the trading day and ETF funds are also very good investments for those investing in the long term.

In today’s article we discuss the different ETF trading strategies that are available to investors such as short selling, covered calls, and hedging.

Short Selling – Short selling is a strategy used by investors who are looking to make a profit when a stock’s value decreases. The seller borrows the security and then sells it for the current market price. The seller must hold the position while in debt to the lender while waiting for a downturn. If the value of the stock does in fact decline the seller then purchases shares to lock in the profit. The shares are then replaced with the new shares bought at the lower stock price . If the value of the stock increases then the seller most likely closes out the positions and tries to absorb a minimal loss.

Covered Call – This ETF trading strategy occurs when trading options and it is an attempt to take advantage of a neutral or declining share value of a stock. Since the ETF market is highly liquid, more and more investors are writing covered calls for ETFs than they are for single stocks. The seller will write a call option on a particular stock and at the same time will hold the same amount of the same stock. If the option expires then the seller keeps any premium. If on the other hand the holder of the call exercises the option, then the seller delivers the stocks. When this happens the risk is very limited because the seller is holding an equal amount of the stock.

Hedging – This ETF trading strategy works best with highly liquid ETFs and for those investors looking to use hedging strategies in order to mitigate risks. Liquidity is the most important factor when looking to hedge an investment so that you are not stuck with a security that becomes difficult to trade.

Please read about Japanese Candlesticks which is a trading strategy used by some of the world’s most successful traders along with other forms of technical analysis . It is the fastest way for new investors to quickly and accurately read stock charts. Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns . Combine these with your favorite technical analysis indicators, such as the moving average , and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or index exchange traded funds .

Please continue your exchanged traded funds education and read about the commodity ETF .