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Exchange Traded Funds

Exchange Traded Funds Can be a Good Low Cost Investment

What is an Exchange Traded Fund (ETF)?

An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.

What Types of ETF’s Are There to Trade?

There are many types of ETF’s providing you the ability to trade almost anything. Examples of some popular ETF’s are listed below:

  • SPY
  • FAS
  • FAX
  • GLD
  • GBTC (is not an ETF, but a trust which trades in a similar fashion to ETF’s)

What are the Benefits of Trading an ETF?

There are several benefits to trading an ETF. Most importantly they offer the ability to quickly react to news and enter a speculative trade based upon your belief as to the underlying value of a certain sector. Additionally they offer options which increase leverage and thus can do two to three times what a daily index (the underlying index being tracked by the ETF) does in a day. This offers somewhat of an opportunity for increased volatility for those who are interested in speculative plays with a very small portion of their overall portfolio of investments (it is generally recommended for the majority 80-90% of your investments to not be actively traded or used for speculation due to the fact that statistically odds of successfully beating the market year after year by trading are slim, but this depends of course on the individual and their beliefs).

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