4 Tips for Trading Exchange Traded Funds

If you are considering trading exchange traded funds you are considering being part of a lucrative future investment. Exchange traded funds, or ETFs have grown rapidly in popularity and present you with an alternative to stocks and mutual funds. They share some of the characteristics of a mutual fund but they are traded more actively like stocks. These factors combined with potentially lower costs make the ETF a very attractive investment for some investors. Here are a few tips for trading exchange traded funds. 

1. Choose Something You Enjoy

The great thing about ETFs is that they have so many to choose from. There are many ETFs that cover entire industries or sectors within an industry. Therefore, you can invest in a particular thing that you enjoy easily with an ETF. In the past, the only way to invest in certain commodities was to take out a futures contract on them. This scared off many investors because of the complexity.

Now, with ETFs, if you want to invest in gold or oil, it is much simpler. When you invest in something that you enjoy, you will take more interest in it and usually be more successful.

2. Shop Around

Trading ETFs can be done through almost any broker. You trade an ETF exactly the same way that you trade a stock. Therefore, you have many choices when it comes to selecting a broker to deal with. In the past, you had to work with a personal broker that made their money off of your investments and trades. Now,  you can trade with an online broker and save substantially. Consider an online company that charges low commissions for every trade. This will help you save money for each transaction that you do and it can really add up over time. 

3. Limit Orders

A limit order is a special type of order that you can use when you place your order for an ETF. These are common with stocks and other types of financial securities. A limit order places the order as long as it can be filled for a certain price.

For example, if you put a limit order out for $15, the $15 is the maximum limit to the order. It will not be filled unless someone will fill it for less than $15. The other popular type of order is called a market order. When you use a market order, you just get the best price that is currently in the market, which can vary greatly. When you get in the habit of using limit orders, you will start to save some substantial money on your transactions. 

4. Underlying Assets

ETFs are made up of a portfolio of underlying assets. Therefore, the ETF will have many stocks or other securities within it. You need to pay attention to the values of the underlying assets and make sure that they are not varying wildly. If you keep up to date with this information, it will help you out in the long run. 

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