ETFs, Exchange Traded Mutual Funds, have been around since the early 1990s. However, they are now incredibly popular and an absolute must for any serious trader or investors searching for profits. Why? One reason, from many, is due to their lower costs than traditional stock ownership. After all, in the end, it’s all about making our money work hard for us right?
These funds trade all day long on a stock exchange, just like individual stocks. However, they are priced continuously throughout the day unlike traditional mutual funds which are priced at the end of the day – making it great for traders to get in and out a little quicker.
Essentially, ETFs mimic the performance of an index like the FTSE 100. The great thing about these funds is that you can access foreign markets that are usually out of reach by the ordinary investor. Therefore, you can profit from Japanese Stocks, Brazilian Crops, Chinese Property Market, African Coffee, Global Currencies and so on. More opportunities simply means more profit! Yes, it can also mean more risk which is why a risk management system is very important such as Trade-Vest’s Best Defence Risk Management System™.
So why is it essential, in anyone’s portfolio, to be trading or even investing in ETFs?
Here are just 5 reasons why it pays to trade ETFs:
The world is your oyster
Too exposed to just UK companies? Want to profit from the boom in biotechnology? Crave to get a piece of the massive bubble in Chinese stocks? Want to profit from precious metals you can’t get access to as an ordinary investor? There is an ETF for everything! Whether it’s the ETFs Precious Metals Fund or the PowerShares Chinese Yuan Dim Sum Bond Portfolio there is something for every craving you have!
Most ETFs have a lower annual charge than some of the cheapest mutual tracker funds out there today. Of course we still pay a dealing fee to buy and sell these ETF shares but a lot of brokers nowadays also allow you to trade them as a CFD which provides a huge benefit.
Trade on margin
Whilst you can buy an ETF like a normal stock and hold in your investing account there are many well established brokers who allow you to trade ETFs as a CFD. One of the biggest benefits is that we can trade this on margin which means we don’t need the full value in our account for a position but just a certain percentage (which varies from broker to broker) to hold in good faith. Margin can be very risky if you don’t know what you are doing which is why we advocate the need for a proper education to learn this life skill.
If investing into an ETF in a traditional brokerage account then unfortunately you cannot short sell directly. But many ETFs provide a ‘Short Fund’ which you can buy. For example, if you believe the Euro currency is going to weaken you could buy the PowerShares UltraShort Euro ETF which essentially means you will make money as the Euro weakens. However, if you are trading ETFs as a CFD you can simply short sell with your broker. The point is that no matter what type of investor or trader you are ETFs can be a key part in your portfolio.
Anyone can learn it!
Believe it or not, many of the best and most successful independent traders and fund managers in the world started out with zero knowledge. In fact, many are living proof that you do not need to be scholastically gifted or a member of the “inside circle” of the banking elite in order to succeed. They did, however have a key unifying trait: they had a raw determination to succeed and they attribute much of their success down to their own mistakes and the help of their mentor.
The founding partners of Trade-Vest are no exception. They began their careers in very different fields before coming together and determining the right strategies and tools that work in both trading and investing.