As with any investment, it is important to understand the product you are using in your portfolio. So before you decide to include ETFs in your investment strategy, you need to understand the basics about exchange-traded funds, or ETFs. I always say, “Know your tools!”
Learn the basic definition of an ETF
ETF stands for Exchange Traded Fund. It is a fund that tracks an index, but can be traded like a stock. ETFs always group the securities that are in an index; they never track actively managed mutual fund portfolios (because most actively managed funds only disclose their holdings a few times a year, so the ETF wouldn’t know when to adjust its holdings most of the time). Investors can do almost anything with an ETF that they can with a regular stock, such as short selling. Because ETFs are traded on stock exchanges, they can be bought and sold at any time of the day (unlike most mutual funds). Their price will fluctuate from moment to moment, just like the price of any other stock, and an investor will need a broker to buy them, which means they will have to pay a commission. On the plus side, ETFs are more tax efficient than regular mutual funds, and since they track indices, they have very low transaction and operating costs associated with them. There are no sales loads or investment minimums required to purchase an ETF. The first ETF created was the Standard and Poor’s Depository Receipt (SPDR, pronounced “Spider”) in 1993. SPDRs offered investors an easy way to track the S&P 500 without buying an index fund, and they soon became quite popular. .
Learn about the benefits and risks of ETFs
Once you understand ETFs, you can learn how they work to your advantage. Understanding the benefits of ETFs will help you use the correct investment strategy when including exchange-traded funds in your portfolio.
It is equally important to understand the downsides of ETFs. Before you buy or sell any investment product, you should be aware of all asset limitations. You don’t want to have misconceptions about the performance of an investment and you need to understand all the risks involved. Here are some good articles to help you understand the pros and cons of ETFs.
Learn about the different types of ETFs
There is no shortage of ETFs. There are multiple exchange traded funds for indices, sectors, styles and regions. It can be a bit overwhelming, but having a better understanding of the main types of ETFs will help you determine which type of funds will fit your investment strategy. Here are some of the top ETFs we use here at Fusion Trading:
ETFs
1. S&P500 SPDR’s – SPY
2. PowerShares QQQ – QQQQ
3. ProShares Ultra Dow30 – DDM
4. ProShares Ultra Oil & Gas – DIG
5. Double Long Gold PowerShares – DGP
6. Bull 3x Large Cap Direxion Stocks – BGU
7. Direxion Energy Bull 3x Shares – ERX
8. Direxion Technology Bull 3x Stock – TYH
Inverse ETFs
1. Short S&P500 ProShares – SH
2. ProShares Short QQQ – PSQ
3. ProShares UltraShort Dow30 – DXD
4. ProShares UltraShort Oil & Gas – DUG
5. PowerShares Gold Double Short – DZZ
6. Direxion Large Cap Bear 3x Shares – BGZ
7. Direxion Energy Bear 3x Shares – ERY
8. Direxion Technology Bear 3x Shares – TYP
Small List, Big Earning Potential!
Decide the best ETF investment strategy
Are you investing in ETFs to gain exposure to a sector of the market? Are you using ETFs as a hedge against foreign risk? Want to trade ETF derivatives against your positions? Are you using fundamental analysis or technical analysis? Will you be using a day, swing or position trading strategy? Will you be using a trending or range trading strategy? Are you going to take advantage of inverse ETFs? Before you add ETFs to your portfolio, you need to decide why you’re investing in the funds. Only then can you decide which ETF trading strategy best suits your portfolio.
Here at Fusion Trading International we use and highly recommend Technical Trading. We primarily use a trend trading strategy combined with a secondary counter-trend trading strategy. We use these strategies for day, swing and position trading. You must take advantage of all three if you want to increase your chances of success! You’ll learn all these strategies and more…don’t waste another minute without taking advantage of this amazing training program!
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