Exchange Traded Funds (ETFs) monitor hundreds of indexes and come in a variety of formats. ETFs are desirable because of their low cost, low expense ratios and minimal turnover. Exchange Traded Funds investors typically employ passive investing. However, this is not the only strategy. Many of the software trading tools available on Top Ten Reviews will assist investors with evaluating the best strategy for investment.
In the past, investors employed the use of a single security to track indexes and trades. Most of this activity occurred intraday. In a single trade, investors may buy and sell each of the securities that make up an entire market. Markets may include the S&P 500 or NASDAQ. Mutual funds will only allow investors to trade once per day. However, Exchange Traded Funds allow investors the flexibility to enter and exit multiple times per day.
Passive management describes the process by which investors implement indexing. Exchange Traded Funds are a low cost means of implementing this process. This process is not as important to investors who prefer to buy and hold. However, the strategy is a convenience and is available for use in certain instances.
Investors who desire more than just average returns will seek a more aggressive trading strategy. Only a minority of funds that are actively managed ever beat the market. However, investors still desire to be a part of the minority who benefit from this strategy. ETFs are a tool to allow investors to determine the direction the market is headed. Active traders will capitalize on short term movements in the market, while still employing some of the passive trading strategies. An active trader, who buys when the market is low, will immediately seize profits if the market suddenly experiences an upward trend. Strategies such as buying on the margin, short selling, market timing and sector rotation may each be utilized with Exhange Traded Funds active trading.
Actively Managed ETFs
Actively managed Exchange Traded Funds are growing in popularity in the United States. ETFs are designed to monitor the movements of an index. However, they may also monitor the activity of a top performing security. Exchange Traded Funds are primarily geared towards yielding above average profits or returns.
Using an actively managed ETF for mutual funds will effectively reduce the amount of cash entering and exiting the fund. This will make the fund easier to manage over time. This process is also more cost effective and will increase the value of the mutual fund for the investor.
Traditionally, actively managed funds were not preferred because the funds are technically difficult to establish. As the process becomes more streamline, investors utilize the strategy more. Arbitrage is the primary difficulty in trading Exchange Traded Funds. Arbitrage involves the purchase and sale of an asset simultaneously. Investors profit from the price difference.
Investors often buy ETFs at a lower value than their supporting securities. When they are sold, investors profit from the price difference. Investors may also short the Exchange Traded Fund. With this strategy investors buy stock shares to cover the position. This strategy is typically employed when ETFs are trading higher than the underlying securities.
Arbitrage effectively maintains the price of the Exchange Traded Fund close to the price of the underlying security.
Stock analysis software incorporates trading tools to assist with ETF strategies. Exchange Traded Funds trading tools are offered and supported in most of the stock analysis software mentioned on Top Ten Reviews. Top Ten Reviews recommends reviewing ETF strategy tools available in MetaStock, Scottrade Elite, and Xtend by Options Xpress stock analysis software.