ETFs Active Vs Passive Investing Strategies
Exchange Traded Funds (ETFs) are always considered good candidates for passive investing. Their variety, portfolio diversity and low-risk nature better suited passive investors. But there are also many traders who actively traded these funds. Here is a comparison.
The major thing which makes ETFs less suitable for active trading is their trading costs. ETFs are just traded like stock and thus there are brokerage fees involved with every buying and selling activity. This can eat up the profit. Actively trading ETFs through a traditional broker, who charge high, can make the scenario worse. Active ETF investment needs, low trading costs, trending tracking market/sector, right market timing and comparatively large position sizes. The strategy better suit actively managed ETFs, which try to beat markets. Most active trading strategies followed for trading stocks, e.g.: trading on margin, sector rotation, short-selling and arbitrage, also works for ETFs.
Passive ETF investing demands the only most followed trading strategy, buy-and-hold strategy. By holding the fund shares for a long term, and also raising the amount invested, one can nullify the effect of trading costs on profits. This strategy is also good for trading traditional ETFs, which tracks the markets passively, and keep their expense ratio to lowest levels. Passive ETF investing better works when you are trading a enough diversified index showing long-term uptrend. Remember, with passive ETF investing, you are less blessed with productive strategies like trading on margin, short-selling and intraday trading.
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Online Futures Trading, Online Forex Trading
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The major thing which makes ETFs less suitable for active trading is their trading costs. ETFs are just traded like stock and thus there are brokerage fees involved with every buying and selling activity. This can eat up the profit. Actively trading ETFs through a traditional broker, who charge high, can make the scenario worse. Active ETF investment needs, low trading costs, trending tracking market/sector, right market timing and comparatively large position sizes. The strategy better suit actively managed ETFs, which try to beat markets. Most active trading strategies followed for trading stocks, e.g.: trading on margin, sector rotation, short-selling and arbitrage, also works for ETFs.
Passive ETF investing demands the only most followed trading strategy, buy-and-hold strategy. By holding the fund shares for a long term, and also raising the amount invested, one can nullify the effect of trading costs on profits. This strategy is also good for trading traditional ETFs, which tracks the markets passively, and keep their expense ratio to lowest levels. Passive ETF investing better works when you are trading a enough diversified index showing long-term uptrend. Remember, with passive ETF investing, you are less blessed with productive strategies like trading on margin, short-selling and intraday trading.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by NobleTrading at
8:49 AM
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