Day Trading ETF – Is This the Right Way to Invest in ETFs

Jonathan Gibson asked:

ETFs have become a popular trading tool for many people over the past few years. There are now ETFs for basically any sector or index you can think of: ETF oil, ETF gold, ETF energy, ETF Dow, and so on. The list is a mile long. The basic thing about ETFs is that they allow you to cling to a portfolio of stocks or bonds and save you the time and the risk of handpicking stocks.

There are many trading styles which can be used when trading ETFs. Day trading is merely one of them. But is day trading ETFs such a good idea? Is Day Trading really suitable for the ETF tool?

The value of an Exchange Trade Fund (ETF) is a weighted average of all the stocks that are in it. This means you’re less exposed to risk, but it also means that Exchange trade funds tend to move in lower oscillations than regular stocks. An average is always lower than its highest member and higher than its lowest. That’s mathematics.

Day trading is basically trying to find stocks or bonds which move in one direction or another. But the shift in price needs to be enough to warrant the trade and make you more money. The lower the shift, the more transactions you need to make a substantial profit.

But we’ve already established the Exchange Trade Funds shift less radically than specific stocks do (this isn’t always the case, but it’s only to be expected). So, Day trading ETFs isn’t actually that suitable as a rule. It’s better to day trade specific stocks. Sure, you can still make money by day trading Exchange Trade Funds, but this investment tool wasn’t made for this.

Personally, I don’t believe in day trading in general, but if you’re going to trade ETFs, you might as well do it in the right way and not the wrong.


ETF Trading

Ahmad A Hassam asked:

ETF trading is?highly popular now! ETFs were introduced some three decades back. Now you can trade ETFs on different market sectors as well as on commodities, currencies and international stocks and much more. So what are ETFs? ETFs stand for the Exchange Traded Funds.

ETFs represent an ownership stake in a basket of stocks or other underlying assets?like bonds, gold, commodities, currencies etc that might represent a stock index, a market sector like energy, oil, technology, semiconductors, travel, education, commodities, currencies?and so on. ETFs have the advantages of both the stocks as well as mutual funds.

You can trade ETFs as stocks. The price of an ETF share keeps on changing in accordance with the price change of the underlying stocks or assets.?However, ?ETFs give your diversification?just like mutual funds.?Instead of owning one stock or one asset, you now own a basket of stocks or assets in the shape of an ETF. But unlike mutual funds whose net asset value is only calculated at the end of the day and you cannot buy or sell a mutual fund share during the day, an ETF share can be sold anytime just like a stock.

The other main advantage that ETFs have over mutual funds is that they have very low fees something like 0.7% of the investment as compared to 2-4% of the usual fees that you have to pay when buying mutual fund shares. This makes ETFs highly superior to mutual funds as well as stocks. So here you have an asset that trades like a stock but has the diversification benefits of a mutual fund and very low cost as compared the mutual funds.

There are now thousands of ETFs in the market. In the past if you wanted to take advantage of oil price increase, you had to do a lot of reseach and look for a strong?oil?company stock. But now you can buy an ETF that might represent an oil index. Since you are bullish on oil prices, this ETF is your best investment on oil prices. It represents a diversified portfolio of oil stocks that would mimic some oil sector index.

You can even have leveraged ETFs. This means that if the index moves up by 1%, the ETF will move by let’s say 5%. There are currency ETFs as well that represent some basket of currencies that you might have a bullish opinion. You can also trade short ETFs also known as Inverse ETFs. If the index moves up by 1%, short ETF or the inverse ETF will move down by 1% and vice versa.

But just like any other investment or trading, first educate yourself thoroughly about ETF Trading before you delve into this great investment opportunity.


The Quest For The Best Trading Course

One of the most consistent members of the Forbes 500 is Warren Buffet. And not just part of the list, he’s in the top three the past several years now. Ever wonder how you can be as rich and successful as Mr. Buffet? Well, he gained his riches through trading and you can too. All it takes is the dedication to do well, and you can find yourself topping the Forbes list every year as well. But how to start? Well, the first step to becoming the next big trading billionaire is to find the best trading course you can get your hands on. Then you will be on your way to being the next Warren Buffet.

Profitable ETF Trading Techniques – Pair Trading in Down Markets to Preserve Capital

Ken Long asked:

In a nutshell, here is what pair trading is all about.

You pick 2 trading instruments that you believe will continue to perform on a relative basis in the way they have been. This means you think the stronger one will continue to be stronger, and the weaker one will still be weaker.

A pair trade is a way to neutralize market volatility. As an example, right now the US market is losing money every day. Emerging markets are also losing money everyday. The crucial difference is that emerging markets are losing money faster than US markets.

Since this relationship may very well continue for the near future, here is what you can do (hypothetically, for purposes of discussion and education only):

Go long the US market by buying shares of the S&P 500 exchange traded fund (symbol: SPY). Go short an equal dollar amount of the emerging markets exchange traded fund (symbol: EEM). T Then on days when the US is down 3% but emerging markets are down 5%, you will net the difference in the 2 performances, which in this example is a positive 2%

As you can see this method will neutralize market volatility and allow you to make money based on the difference in relative performance.

Exchange traded funds are an ideal way to play this kind of short to intermediate term trade because they are composites of underlying companies, and you are able to minimize the risk of individual companies.

By analyzing a relatively small number of exchange traded funds, you will be able to find some persistent macro-economic trends in the market that give you an opportunity to make money even when all markets seem to be going down.

As with all investments, these have been hypothetical examples and you should do your own due diligence, and consult with a financial professional.