Since I have converted from trading exclusively stocks to ETFs during the past six months, I wanted to share some insight as to why I like swing trading them because there are so many benefits!
Reduced risk of obliteration! Do you ever wonder if you are going to wake up in the morning and have your stock be the next one to drop 50% that day because the CEO got caught with his hands in the cookie jar? The diversification factor greatly reduces this risk because there is minimal exposure to any one individual stock. For example, the biggest single exposure in the Semiconductor HOLDR stock (SMH) is Intel, which currently has a 21.18% weighting of the index. Reducing the odds of getting totally wiped out should always be your number one priority!
No uptick rule. Unlike traditional securities, ETFs are not subject to the uptick rule that prevents the short sale of securities on a downtick. This makes selling an ETF short much easier and quicker than with a traditional stock.
Lower trading commissions. Prior to ETFs, if you wanted to buy a basket of stocks within a particular sector, it could get expensive because you generated one commission for each stock you wanted to buy. With ETFs, there is only one commission to buy or sell short the whole sector.
Access to more markets. With ETFs, you now have access to markets that were previously unavailable to equities traders, such as Government T-bonds and many International markets. With new ETFs being created every month, the realm of trading opportunities keeps growing.
More follow-through. You have identified a particular sector you would like to be in, place the trade, then watch every single stock in the sector go in your direction EXCEPT the one you are in. Ever happened to you? With ETFs, you are at less risk of buying or selling short the wrong stock within a particular sector because you are essentially buying or selling short the entire sector! This means that it does not matter as much if Morgan Stanley has a big sell order in AMD because you will also have exposure to the rest of the stocks in the Semiconductor index if you buy SMH.
Better trending. ETFs chart better than individual stocks because even if one stock within the index is volatile and erratic on a particular day, the composite of associated stocks within the ETF aids in smoothing out the trend.
Fast executions. Although you can trade ETFs through a traditional stock exchange such as the NYSE or AMEX, you can also trade through ECNs such as Island, ARCA, or Redibook. This enables you to get instant executions, especially because the average daily volume in ETFs has been steadily increasing.
I will share my discoveries and thoughts on trading ETFs in this thread as it grows.
Reduced risk of obliteration! Do you ever wonder if you are going to wake up in the morning and have your stock be the next one to drop 50% that day because the CEO got caught with his hands in the cookie jar? The diversification factor greatly reduces this risk because there is minimal exposure to any one individual stock. For example, the biggest single exposure in the Semiconductor HOLDR stock (SMH) is Intel, which currently has a 21.18% weighting of the index. Reducing the odds of getting totally wiped out should always be your number one priority!
No uptick rule. Unlike traditional securities, ETFs are not subject to the uptick rule that prevents the short sale of securities on a downtick. This makes selling an ETF short much easier and quicker than with a traditional stock.
Lower trading commissions. Prior to ETFs, if you wanted to buy a basket of stocks within a particular sector, it could get expensive because you generated one commission for each stock you wanted to buy. With ETFs, there is only one commission to buy or sell short the whole sector.
Access to more markets. With ETFs, you now have access to markets that were previously unavailable to equities traders, such as Government T-bonds and many International markets. With new ETFs being created every month, the realm of trading opportunities keeps growing.
More follow-through. You have identified a particular sector you would like to be in, place the trade, then watch every single stock in the sector go in your direction EXCEPT the one you are in. Ever happened to you? With ETFs, you are at less risk of buying or selling short the wrong stock within a particular sector because you are essentially buying or selling short the entire sector! This means that it does not matter as much if Morgan Stanley has a big sell order in AMD because you will also have exposure to the rest of the stocks in the Semiconductor index if you buy SMH.
Better trending. ETFs chart better than individual stocks because even if one stock within the index is volatile and erratic on a particular day, the composite of associated stocks within the ETF aids in smoothing out the trend.
Fast executions. Although you can trade ETFs through a traditional stock exchange such as the NYSE or AMEX, you can also trade through ECNs such as Island, ARCA, or Redibook. This enables you to get instant executions, especially because the average daily volume in ETFs has been steadily increasing.
I will share my discoveries and thoughts on trading ETFs in this thread as it grows.
