ETF Trading Strategies

Definition of ETF

ETF is known as Exchange Traded Funds which means a security that goes way back to a commodity, an index or assets which is like an index fund but is traded like a stock that is exchanged. There are frequent price fluctuations as and when they are purchased and sold in a day.

ETF Trading Strategies

Trades Like Stock-

ETFs are traded like shares of stock and are listed in on a stock market. A person can buy as less as one share or any number of shares. These shares are mostly bought by investors because these can be bought on a margin or shorted. These are updated with the price every minute during the day; therefore you can get the updated quotes from your financial advisor. They are popular because they make awesome hedge investments. ETFs can be used for different types of investments as they are utility stocks and make a good long term investment.

Covered Call-

Covered calls are the safest stock options as compared to other stock options. A covered call is usually used to benefit out of declining share or a neutral share value of a stock. ETFs are quite popular because of their liquidity for covered calls as compared to single company stocks. One of the top ETF is QQQ which enjoys high trading volumes, therefore investors look at it as a resource for risk mitigation strategies and hedging.

Short Selling-

Short selling is a type of investment strategy in which an investor would get a return even if the value of the stock falls. A short sale is basically one in which the security is borrowed by the seller and it is a type of legitimate trading strategy. In case, if the price of the share goes down, shares can be purchased by the short seller to lock the profit.

Going Long-Term-

Though ETFs were looked as utility stocks by many investors; they were taken as long term investment growth. They rather are the best choice for a long term investment strategy; because they have various stocks for different companies that take the index up. ETFs get along much built-in diversity as they go by the major indexes. They give the flexibility for your portfolio to expand in a particular sector without you purchasing shares in large numbers.

Hedge Investments-

ETFs that have a high liquidity are used by investors so that they can start and seek hedge strategies. They would help in finding the risk involved in investments that could lead to mitigations.

When it comes to long term hedge strategies, any investment that is short-term or long-term in a liquid ETF would help in the diversification of holdings. This can be done by exposing the portfolio to the economic sector and industries. Many ETFs offer more opportunities to mitigate risk with hedge investments. With many derivative products that are in a combination, like institutional and retail investors are capable of designing low cost hedges to fulfill the requirement for portfolio.