The Many Benefits Of ETFs

One of the most favorable characteristics that ETFs have is their flexibility, or ability to be traded like stocks. 

This characteristic is beneficial because it enables an investor to get continuous intraday pricing and the ability to buy or sell a basket of securities through the trading day.  This further translates to pricing transparency, in that at any given time an investor knows exactly what the price of an ETF is.

Additionally, ETFs can be sold short, just like stocks.  This characteristic enables investors to bet against an entire sector, as opposed to just one stock.  For example, if an investor wants to bet against the financials, he can short the Financial Select SPDR (XLF) which will give him short positions in Bank Of America (BAC), JP Morgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC) all in one trade; this will also reduce transaction costs.

Some other characteristics of ETFs include their ability to be traded on margin, can be optioned and can be used in buy/write strategies where one can write a covered call against a position.  ETFs also enable one to manage risk relatively easily through the use of limit and stop losses. 

When it comes to choices, there are plenty of ETFs to choose from.  There are basic indexes like the SPDR (SPY), sector specific indexes like the iShares Dow Jones US Real Estate (IYR), commodity based indexes like the US Oil Fund (USO), country specific indexes like the iShares MSCI Malaysia Index (EWM), currency specific indexes like the CurrencyShares Japanese Yen Trust (FXY) and many more.

ETFs are here to stay and will continue to make a stance in the investment world.

Advertisements

About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: