Major ETF Trading Strategies : NobleTrading Blog

Tuesday, March 17, 2009

Major ETF Trading Strategies

Exchange Traded Funds (ETFs) are flexible instruments to fulfill various portfolio goals. Different traders employ different strategies to profit from ETFs. Below are some most followed ETF trading strategies.

Buy and Hold Strategy: This is so far the most followed ETF trading strategy; for profiting from broad indexes or sectors, and also for limiting overall portfolio risk. Diversity of ETF funds is the core of this strategy. Traders can choose fixed incomes or steady portfolio growth and can profit from growth of almost all financial products – stocks, bonds, funds, commodities, indexes, emerging markets, currencies, etc.
Active long-term trading strategy: This strategy is much like buy-and-hold strategy but it includes frequent or periodic portfolio rearrangements. For example if the trader thinks a sector/industry/market/currency is going to outperform others he can buy more shares of ETF which tracks it and can sell shares of less-performing ETFs.
Active short-term trading strategy: This strategy works just like short-term trading of equities. The fact that ETFs are traded just like stocks makes it possible for day traders and swing traders to buy and sell them whenever they want. Traders can also short-sell ETFs. The only factor to be considered is the trading charges but is avoided by higher position sizing and trading with discount brokers; fore example a trading charge of $10 can be affordable for an above $10,000 trade.
ETFs wraps: wraps are good for investors who prefer a fee-based investment account. ETF wraps are considered more beneficial than mutual fund wraps and are now getting increasingly popular. To know more about visit What is ETF Wrap? and Advantages of ETF Wraps.