There are many reasons to consider for trading Exchange Traded Funds (ETF’s). As I mentioned in the last blog, there are currently over 1600 ETF’s and that number is growing every week. You just need to be aware that the newer ETF’s typically start out with very low volume until they become more popular.
There are many websites you can go to and learn more about ETF’s. ETFdb.com is one that I follow. These sites have features to look at ETF’s by sector, average daily volume, YTD performance, top holdings and other criteria. Then you can choose the ones from each sector that meet your requirements for performance, minimum volume and etc. By going through this exercise you have just built your list of ETF’s to start following and trading. You can always go back and adjust your list. See the example below. Notice the summary at the top that shows how many ETF’s in the category and expense ratios.
There are many reasons why ETF’s may be a good vehicle for you to trade. Below are a few of the most important ones:
* ETF’s tend to have lower expense ratios than mutual funds. Most ETF expense ratios are around 0.5%, while mutual funds are around 1.5%. Some mutual funds even have front-end or back-end loading fees.
* You can trade them intra-day, like stocks. Mutual funds only price at the end of the trading day.
* ETF’s allow you to trade a sector with less volatility that trading an individual stock. There is less impact to earnings misses, downgrades and etc. as compared to an individual stock.
* Inverse ETF’s allow people with IRA’s and 401K’s to trade in a down market, instead of just holding on or sitting on the sidelines.
* Trading ETF’s from different sectors makes it easy to diversify.
* ETF’s are available with all of the major brokers.
* ETF’s can be traded long or short, and on margin.
I hope this was helpful.
Simpler is Better,
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