Advantages of Trading Fixed Income ETFs : NobleTrading Blog

Monday, February 16, 2009

Advantages of Trading Fixed Income ETFs

Fixed income Exchange Traded Funds (ETFs) offer many advantages to traders over bonds, mutual funds and other similar instruments. Know more about Fixed Income ETFs. Below are some advantages of fixed income ETFs.

They allow traders to profit indirectly from performance of bonds.
Unlike bonds, they are traded in organized exchanges, where one can trade flexible shares of it.
ETFs have less expense ratio than mutual funds thus have less tracking errors.
They can be short-traded and intraday-traded and can be traded on margin even from a retirement account; this can add great flexibility in trading.
They are very good instruments for long-term trading as they can offer both monthly dividends and great diversification with single trade.
They are good instruments for short-term trading like swing-trading as they allow traders to profit from market changes. For example a trader can short fixed income ETFs on Government bonds if the interest rate is going to be increased.
They are also good instruments for hedging interest rate change risks. For example a trader can short or long trade (also on margin) ETFs to hedge against interest rate fluctuations.
Unlike bonds, there is no maturity date, you can sell off them whenever you want and can hold them as long as you want.
There are TIPS (Treasury Inflation Protected Securities) bond ETFs which can offer protection against interest rate changes.