Monday, June 23, 2008

Benefits of trading ETFs

ETFs are securities that are composed of many different stocks. Each stock in an ETF has something in common with the other stocks. For example their might be an oil ETF that has nothing but oil drilling stocks.

These are often nice trending and can have many benefits over regular stocks. I have listed a few here.

1. They give somewhat of diversification within one group. That allows you to bet on the group as a whole rater then a given stock. One way this might help you would be if you are bullish on say restaurants in general. If you invest in an individual company it may go down from bad earnings or sudden surprises, even if the industry as a whole goes up. In this case buying an EFT can be a great way to get what the majority of the group is doing.

2. You do not get big company surprises. There are times when a stock will have a sudden surprise. This could be something like a government inspection. Surprises like that can give a big shook to an individual stock. ETFs are less affected by a surprise because they are composed of many different stocks.

3. They are also less affected by company earnings announcements. Earnings announcements can have a big effect on a stock either up or down. Trying to trade during this time can be a very dangerous thing. No one knows exactly what the earnings will say and even if you did you don’t know how it would affect the markets. That is why it is best to trade something like an ETF during this time.

4. They often have great trends that could be trending better than regular stocks. I have seen them outperform the majority of stocks at times even if they are diversified.

For more information on ETFs visit

For more information on stocks visit

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