Trade Like the Professionals By Using ETFs

Mon, May 24, 2010

Financial Advice, Investment


It used to be that only hedge funds and high net worth individuals could include instruments like commodities, currencies and sophisticated index-based derivatives within their aggregate portfolios. Now, using the power of Exchange Traded Funds (ETF’s), the individual investor can now take advantage of the movement of precious metals, currencies, commodities or market sector indices with the same ease and simplicity entailed with buying a normal stock.

An ETF trades like any other stock, however, as opposed to the symbol representing shares in a given company an ETF quote reflects the value of the instrument it tracks. For example, the ETF with ticker symbol GLD tracks the price of gold. Should you desire to go long gold, then you simply buy shares of GLD like any other stock. Conversely, if you feel that the price of gold will decrease, then you can sell GLD short just as you would any other ticker symbol. Other precious metals have ETF’s as well — most saliently SLV tracking the price of silver.

The ETF with ticker symbol USO seeks to track the price of crude oil, and UNG follows the price of natural gas. On the currency front, FXE tracks the price of the Euro and FXY tracks the Japanese Yen. Many other currencies also have their own ETF. In terms of the overall market, the ETF with ticker symbol SPY follows the S&P 500 while DIA mirrors the Dow Jones. Narrow market ETF’s also exist — for example, XLE tracks the energy sector while HHH tracks the performance of Internet-based companies. Whatever your investment thesis, there is an ETF which can be used to play it.

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