ETF Trading Basics: The Advantages
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.
The first thing to be aware of with ETF is that when anyone talks about the "history" of ETF, they are not talking about Wall Street. ETF has been around a very short time and actively-managed since 2008. There are some very large financial firms involved in ETF and that is where the history comes in. One can look at the history of a financial firm or company and see how they have done in other areas of stocks and get a fairly good idea of their record of success.
Another factor in determining the popularity of ETF training are the numbers. There were 628 ETFs in 2008 with $562 billion. In August, 2009, there were 858 ETFs holding $674 billion. Part of the astounding growth of ETF trading has been due to the number of ETF trading markets that are available. Some of the trading is of minimal risk to a trader. Other trades are extremely high risk and require extensive knowledge of the movement of the market one is trading in.
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.
There is a tremendous amount of buying and selling flexibility. ETFs can be bought and sold at any time during the trading day. A person can purchase shares on margin and sell short which allows hedging strategies to be used. Most of the benefits of stock trading are included in ETF trading. A person can use stop order, limit orders, use stop-loss orders, and buy on margin options (puts, calls, 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.
Most ETFs are structured as open-end management investment companies. They must get an exemption from the SEC for form the company and are structured the same as mutual and money market funds. This gives the ETF flexibility when constructing their portfolio. The ETF can use futures and options to achieve investment objectives and participate in lending programs. The SEC has a proposal to make ETFs open-end management investment companies which will alleviate the need to get an exemption.
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. - 23200
The first thing to be aware of with ETF is that when anyone talks about the "history" of ETF, they are not talking about Wall Street. ETF has been around a very short time and actively-managed since 2008. There are some very large financial firms involved in ETF and that is where the history comes in. One can look at the history of a financial firm or company and see how they have done in other areas of stocks and get a fairly good idea of their record of success.
Another factor in determining the popularity of ETF training are the numbers. There were 628 ETFs in 2008 with $562 billion. In August, 2009, there were 858 ETFs holding $674 billion. Part of the astounding growth of ETF trading has been due to the number of ETF trading markets that are available. Some of the trading is of minimal risk to a trader. Other trades are extremely high risk and require extensive knowledge of the movement of the market one is trading in.
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.
There is a tremendous amount of buying and selling flexibility. ETFs can be bought and sold at any time during the trading day. A person can purchase shares on margin and sell short which allows hedging strategies to be used. Most of the benefits of stock trading are included in ETF trading. A person can use stop order, limit orders, use stop-loss orders, and buy on margin options (puts, calls, 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.
Most ETFs are structured as open-end management investment companies. They must get an exemption from the SEC for form the company and are structured the same as mutual and money market funds. This gives the ETF flexibility when constructing their portfolio. The ETF can use futures and options to achieve investment objectives and participate in lending programs. The SEC has a proposal to make ETFs open-end management investment companies which will alleviate the need to get an exemption.
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. - 23200
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