If you use exchange traded funds – ETF’s – as an investment vehicle then what is the best technique to use to maximize returns? Fundamental analysis or technical analysis?
Fundamentals are where your aim is to predict ETF futures prices taking into account various factors such as supply, demand, weather conditions, interest rates, government policy and various other factors that affect the economy. If you are an economist then you are in a good position to be able to monitor many different factors on a daily basis with any thoroughness.
However there is a way – exchange traded funds or ETF’s are, although fairly new to the investment market,
are now highly popular because they do the same job as mutual funds but offer more flexibility to the investor.
Mutual funds are good in that they do reduce the investment risk but using funds from a pool of investors to purchase various stocks. However, there are limits to what you can do with mutual funds so in other words you cannot optimize the opportunities. You cannot trade during the trading day as you can traditional stocks for example, so any gains in a particular stock you have in your portfolio could be lost come the day end.
ETF’s are also pooled funds just like a mutual fund but they are listed on the stock market and can be flexibly traded like you would any other form of stock. You can buy or sell at a time that is suitable to you – either during trading or after it. Call up your broker on the phone and its done in seconds, or go to your online account and click a few buttons on your mouse and hey presto!
Ideally you want to have a system in place where you are regularly exposing a small proportion of your funds to the risk. If you can do your market analysis in a fairly short time each day, rather than spending hours on it and at the same time you have some accuracy from that analysis then you are ahead of the game.
So over all, exchange traded funds are a great way to invest capital. You have the security in diversifying your shares while at the same time having the flexibility of intra-day trading to maximize gains and minimize potential losses. Furthermore you can use put options to minimize risk further and other forms of options to add to investment flexibility further. Good luck with your trading!
Want to find out more about etf funds, then visit www.etftrading.co.uk to learn more about s&p 500 etf.
October 30, 2009 | Posted in
