Articles: Trading

WhatIsETF
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Exchange Traded Funds (ETFs) � What They Are & How They Work
ETFs, otherwise known as �Exchange Traded Funds�, are a fast-growing segment of the Finance and Investment Market which are moving towards replacing Mutual Funds as preferred means of fund investing.
You are no doubt familiar with the myriad of ways to trade the markets� Forex, Options, Stocks & Shares, Futures & Commodities etc., but since the early 90�s, a group of funds becoming more popular is that of ETFs � having grown from $16 billion in 1996 to over $600 billion just over 10 years later
How Do They Function?
ETFs trade like stocks allowing an investor to trade (ie buy/sell) during normal exchange trading hours, which is different from a mutual fund. This means you have instant access to your funds when selling an ETF position during the Exchange trading hours.
What is Their Compilation?
An ETF is a fund comprised of a group of stocks, bonds, or other investment avenues similar to a mutual fund, but more readily accessible as stated above
Although ETFs can generally be more cost/tax efficient than mutual funds, a commission is applicable similar to that when trading stocks. No minimum �buy requirements� apply, nor are there holding period requirements as is the case with many mutual funds.
Likewise, you can buy as little as 1 share of an ETF as you would buy 1 share of a stock. Simply put, you can benefit from the diversification that a fund has to offer and the ability to trade in and out of the fund.
This is a great deal, as you can significantly minimize stock specific risk by trading a basket of stocks within the fund. That means that if one stock in the fund suddenly drops in price, the negative impact on a position you may have in the fund would be far less than if you had owned a position in the shares of that particular stock.
Different Types of Funds Available
ETFs include stock sector, country, currency, commodity, bond or other investment objective related funds and in the United States alone there are currently in excess of 600 funds, to which more are being added daily.
Additionally, there are funds that have only short positions - sometimes referred to as �short� funds, or �short ETFs�, which will increase in price as the short positions they hold go down in price.
ETFs are also a growing investment vehicle in international stock markets as well. A prospectus on each ETF is available and information on the individual holdings of an ETF can be found on Yahoo Finance and other financial related websites.
Some funds are leveraged funds, meaning that when the stocks in their funds go up by say 5%, the fund could go up by 10% and short funds whose stocks go down in price by say 5%, could go down 10%. Note however, that not all ETFs are suitable for trading as many are too volatile to be considered good swing trading vehicles or are �thinly traded�.
Statutory Regulations
ETFs in the U.S. are created and maintained by sponsor companies subject to the approval and regulation of the Securities and Exchange Commission.
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