Why Would You Trade ETF's?

R

RAF618

Hey equities traders.

Why would you trade ETF's?

They have bundled fees.

They don't reflect the true value of the underlying in most cases.

Futures have the IRS Section 60/40 rule and you pay less taxes.

Liquidity is better and spreads tighter in many cases.

Leverage is better.

You can trade them 24 hours when you are stuck in an equity product if you are stuck overnight..

Why?

I have some great data on ETF's vs. Eminis and futures for those that are interested. Also take a look at IRS section 1256.

PM me.

Rafael
 
I assume that your argument is geared toward the general index ETFs like the SPYs, the QQQQs, etc.


There are no futures that correspond with the sector specific ETFs like the XLV for health care, the XLU for utilities, the XLF for the financials, the SMH for semiconductors, etc.
 
1) sometimes futures offer too much leverage
2) many ETFs cover sectors not covered by futures
3) they are quick and easy
4) good for swing trades - fees matter less here.

with that said, i really don't get why institutions (who do size, and may better be served by futures) do such large volume on the SPY and QQQQ etf's .... maybe someone can help me out on that one (besides the obvious answer of arbitrage).
 
Great responses so far.

Would you guys not agree that 75% + of the direction of a sector or a particular issue is the direction of the overall equity market?

My feelings are why complicate things. If the general market is down, short the ES.

Why fight the trend and need to analyze multiple sectors, etc?

I find that simple is better.

Rafael
 
Because there are times when one sector is trending while other sectors and the overall market are not.

Besides there are also non-equity ETFs such as TLT for bonds and DBC for commodities, etc.

Take a look at the chart of DBC and compare its trend to ES.

“Everything should be made as simple as possible, but not simpler.” --Albert Einstein
 
Quote from quantumrock:

Because there are times when one sector is trending while other sectors and the overall market are not.

Besides there are also non-equity ETFs such as TLT for bonds and DBC for commodities, etc.

Take a look at the chart of DBC and compare its trend to ES.

�Everything should be made as simple as possible, but not simpler.� --Albert Einstein
More...

Yes, I trade in all the futures markets. So, instead of DBA, I will trade Sugar, Beans, Corn, or Wheat, etc...

ES example is just for equities..

TLT? I will trade the 10 year note, 30 yr bond, 2 yr, 5 yr, etc..

From my experience, futures are more of a graduation from trading these vehicles IMO.

I think most folks are scared of futures, but once learned, it is much purer and much better.

Just my opinion.
 
I respect your opinion. But let me turn the question around: why trade futures when there are ETFs?

1. as you say 75% of price action is dependent on overall market action so instead of trading say wheat and corn, you can trade DBA.

2. future contracts have an expiration so rolling over is necessary

3. most importantly, future contracts have a larger underlying so it's more difficult to customize and scale position size

Most folks are scared of futures, and rightly so, because 1 contract may be too large for a position for their equity or strategy.

Quote from RAF618:

Yes, I trade in all the futures markets. So, instead of DBA, I will trade Sugar, Beans, Corn, or Wheat, etc...

ES example is just for equities..

TLT? I will trade the 10 year note, 30 yr bond, 2 yr, 5 yr, etc..

From my experience, futures are more of a graduation from trading these vehicles IMO.

I think most folks are scared of futures, but once learned, it is much purer and much better.

Just my opinion.
More...
 
Quote from RAF618:

Hey equities traders.

Why would you trade ETF's?

They have bundled fees.

They don't reflect the true value of the underlying in most cases.

Futures have the IRS Section 60/40 rule and you pay less taxes.

Liquidity is better and spreads tighter in many cases.

Leverage is better.

You can trade them 24 hours when you are stuck in an equity product if you are stuck overnight..

Why?

I have some great data on ETF's vs. Eminis and futures for those that are interested. Also take a look at IRS section 1256.

PM me.

Rafael
More...
ETFs pay dividends or interests in leveraged (2X) ETFs.

Futures usually have contango (which is a bit like time decay).

Futures leverage is too much for most beginners here at ET.
They are blowing their accounts with ETFs, so with futures they will get into debt with the stockbroker (unlimited risk).
 
You must log in or register to reply here.
Back
Top