Stock Market Trading
Advantages of ETFs
Exchange Traded Funds (ETFs) are investment funds that are traded on the stock exchange like stocks. ETFs may track stocks, bonds and other assets. However, the majority of exchange-traded funds track indexes. QQQ, SPY and DIA are examples of ETFs that track the NASDAQ 100 (^NDX),S&P 500 (^SPX) and Dow Jones Industrial (^DJI) index, respectively. Investors cannot trade indexes directly. Therefore, the exchange traded funds provide them with an ability to buy and sell an index's assets through a corresponding ETF.
Exchange Traded Funds are funds that can be traded like stocks, which make them unique and very attractive to a wide range of investors. Since the introduction of ETFs, they have become the most popular trading vehicles in the investors' world. Below is a list of some benefits provided by ETFs:
- By investing in a single ETF, an investor is buying or selling an entire portfolio of stocks. One single transaction can greatly diversify a portfolio.
- Unlike traditional mutual funds, ETFs can be bought on margin.
- All Exchange Traded Funds can be sold short and can be used in bear markets.
- Unlike traditional mutual funds, ETFs can be traded (bought and sold) throughout the trading session.
- Low ETF prices make them affordable to regular investors. An ETF has lower costs than a basket of covered stock. For example, it is cheaper to buy one share of QQQ than to buy one share of each stock from the NASDAQ 100 index basket (100 stocks, some of which are very expensive).
- There is no minimum purchase. A trader may buy or sell short as little as one share.
- Unlike traditional mutual funds, there are no high management fees.
- Like common stocks, ETFs provide an opportunity to receive dividends.
- ETFs are easy to analyze and trade. There is no need for complicated fundamental analysis that may be required when investing in stocks. There is no need to go through thousands of stocks in order to select only a few. All of that work is done by sponsors who track indexes. All that must be done is the index analysis.
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