Less Explored ETF Trading Strategies : NobleTrading Blog

Monday, August 3, 2009

Less Explored ETF Trading Strategies

Exchange Traded Funds (ETFs) are probably the most flexible and diversified financial instruments available for trading and investing. Here are some less explored ETF trading strategies, most of which are short to medium term strategies. Most of these strategies demand good trading/market knowledge and money management.

Shorting Sector ETFs: ETFs can be shorted even on a downtick, and traders can short ETFs that are tracking specific sectors which are on a downtrend. This strategy can be maximized by shorting specific industry or ETFs tracking international markets/sectors.
Maximizing Tax Benefits: ETFs are tax savvy instruments and are ideal candidates for avoiding the wash sale rule. ETFs move with the index/sector/stocks they are tracking but they are not identical to those; this helps in avoiding the rule.
ETF Only Portfolio: For less investment, the portfolio can be more diversified. In case your objective is just to have a set of mixed assets, ETFs are the economic way to go. You need not take the effort of selecting specific stocks. With such a strategy, you might miss the profits on specific stocks. But the advantage is that you will incur no stock-specific losses either.
Profiting from bond ETFs: Short-duration bond ETFs can be ideal candidates for investing the 'cash' in your portfolio. You can gain more than money-market funds and withdraw the cash at any time. You can also practice bond laddering by trading bond ETFs of different durations. But there is a limiting factor, brokerage fees.