Z Cherry Blog

Learn how to get the best out of ETF Trading

February 23rd, 2008

Exchange Traded Funds (ETFs) are financial instruments that are traded like shares on a stock exchange. They represent a basket of securities related to a particular market sector, an index, a geographical region or other chosen parameters.

Although ETFs may appear to be similar to mutual funds they are different in that the price per share is updated during trading hours, while mutual and index funds have a  NAV (net-asset value) which is calculated at the end of each trading day.

An ETF’s price fluctuates according to supply and demand. While ETFs attempt to mirror the return on indexes, there is no guarantee that they will do so precisely. There is likely to be at least a 1% difference between the actual index’s year-end return and that of an ETF.By owning shares in an Exchange-Traded Fund, an investor gets the diversification of assets with the flexibility of a stock. ETFs trade like stocks so they can be sold short, bought on margin and in quantities of a single share.

Another advantage is that the expense ratios of most ETFs are lower than that of the average mutual fund. When buying and selling ETFs, you pay your broker the same commission that you’d pay on any regular trade.

It can take a while to understand the complexities of ETF trading, and of course choose from the many different ETFs on the market, but if you do a course with a recognised training facility, you can soon learn how to profit with Exchange-Traded Funds  – as I have.

Entry Filed under: Business