Benefits of Trading ETFs

ETFs are securities that are composed of many different stocks. Each stock in an ETF has something in common with the other stocks. For example their might be an oil ETF that has nothing but oil drilling stocks.

These are often nice trending and can have many benefits over regular stocks. I have listed a few here.

1. They give somewhat of diversification within one group. That allows you to bet on the group as a whole rater then a given stock. One way this might help you would be if you are bullish on say restaurants in general. If you invest in an individual company it may go down from bad earnings or sudden surprises, even if the industry as a whole goes up. In this case buying an EFT can be a great way to get what the majority of the group is doing.

2. You do not get big company surprises. There are times when a stock will have a sudden surprise. This could be something like a government inspection. Surprises like that can give a big shook to an individual stock. ETFs are less affected by a surprise because they are composed of many different stocks.

3. They are also less affected by company earnings announcements. Earnings announcements can have a big effect on a stock either up or down. Trying to trade during this time can be a very dangerous thing. No one knows exactly what the earnings will say and even if you did you don’t know how it would affect the markets. That is why it is best to trade something like an ETF during this time.

4. They often have great trends that could be trending better than regular stocks. I have seen them outperform the majority of stocks at times even if they are diversified.

For more information on ETFs visit http://www.stocks-simplified.com/etfs.html

For more information on stocks visit http://www.stocks-simplified.com

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Is Trading Dumb?

Trading is the buying and selling of stocks or other financial instruments over short periods with a view to making a profit between the opening and closing of a position. By contrast, investing is the accumulation of assets over the long term. Although investors adjust their portfolios, this is part of a longer strategy rather than creaming-off short-term profits.

Investments consistently grow over the long term, investing is rational. But trading is closer to an afternoon at the races.

Wall St traders rank among the highest paid members of society, out-earning doctors, engineers, teachers and countless other seemingly more useful occupations. Trading is perceived as lucrative and glamorous.

Trading has become available to the little guy since the onset of the Internet.

There’s no shortage of cut-price brokers clamoring to execute your trades, computerized platforms offering to put your system on auto-pilot, and courses promising untold wealth for just a few hours a day in front of the screen. There’s all kinds of strategies - swing trading, day trading, momentum trading, scalping… in all kinds of markets - stocks, forex, options, future, commodities…

It all sounds too good to be true. But is it?

Markets are supposed to be efficient. That means that the price of any stock, currency etc is the right price taking account of everything that’s publicly known about it. If that’s so, how come the big boys can make big bucks? Maybe it’s because they know just a little more than you or me, or maybe because they can take advantage of any new facts that little bit quicker.

Trading is basically a zero-sum game. The act of trading doesn’t generate value in itself. Every dollar gained by someone is a dollar lost by someone else. Although historically cheap, commissions still take a chunk out of every trade. These can soon mount up if you’re making many trades a day, and remember every trade carries a commission going in and another coming out.

All this doesn’t mean trading isn’t for the small player, but it does mean s/he should proceed with extreme caution. There are individuals out there doing very well from trading, but there’s a good many that have lost their shirts.

If you’re still interested, accumulate knowledge, read widely, get involved in Internet forums… Decide what you’re going to trade and adopt, adapt or create a system.

Then open one or more practice accounts. Get to know the platform. Test your system. Tweak it until you’re confident you can make a consistent profit. Then, and only then, consider doing it for real. If you take the plunge, remember the psychology differs when you’re playing with real money - your money. Stay disciplined.

Johnny Finnis is editor of personalmoneymanagement101.com, a simple and unbiased introduction to finance and investment for ordinary people to make the most of their money. Have your say on our blog

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