What Exactly Is ETF Trading?
ETF stands for exchange traded fund, a group of stocks similar to a mutual fund, which can be traded on the open market. Private, individual investors can buy shares in an ETF, although a lot of cash is needed, as ETF sector trading operates on the scale of tens of thousands of shares, so it’s not for the small investor.
When you buy into an ETF, you’re effectively buying into several different companies at once, so it’s a good idea to get help from a registered broker – online or in person. ETF trading strategies are simpler than the strategies used for individual stocks as you’re looking at bigger more widely spread trends – industry specific or even geographical area specific. With ETF trading you can also buy into international markets you might not have access to otherwise.
ETF trading spreads out the risk to the investor; it allows you to have a good pick and mix of assets, which means one company’s loss is at least balanced out by another’s gain. If you’re new to trading, and have a sizeable pot of cash sitting around, ETF sector trading could give you a reasonable income. You won’t see the highs of individual stocks, but you won’t see the lows and losses either.
ETF trading strategies were briefly touched on earlier, and they can be made very simple. Most ETF traders are after long-term, low risk gains, and all they need to do to achieve this is fill asset allocation gaps. Traders can get fancier and more technical as they gain experience.