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Top Strategies for ETF Stocks (Part 2)

30 October 2007 - Features - Editor

Top Strategies for ETF Stocks (Part 1)

Short selling of sector or commodity ETF stocks is an interesting way for professionals from various fields to make large amounts of money relatively quickly, and with very little at stake. However, employees have to ensure that the companies for which they work are not parts of such ETF baskets. Another important precaution is to set limits for bearable losses, so that investors can opt out if developments do not unfold as expected.

ETF stocks have begun to proliferate on a global basis. This is a positive development, and scores over Mutual Funds in some respects. Small investors need not depend entirely on the track records of fund managers, and can use their own judgments and models to move in and out of stocks which they understand well. A retail investor will probably never have investment funds of the scale of large financial institutions, but can learn how they operate to start building sector niches within even modest portfolios. Small investors should know that buying and selling individual securities from a given sector will cost more by way of transaction fees, compared to trading in ETF stocks. This cost differential is highlighted when short-term trades take place frequently. This is why most experts advise on buying in to ETF stocks with the long term in view. However, the long-term perspective in ETF stocks should not discourage small investors from arbitrage opportunities when they present themselves. It may help if newcomers to the profitable world of trading in transient value differentials work under or observe skilled professionals at work, and even mimic their transactions on small scales if no conflicts of interests are involved. Every second counts in arbitrage deals because margins are so wafer thin and dynamic.

Conflicting leads on how to deal with ETF stocks are best resolved by setting personal objectives and financial limits. Tax planning and confidence in the stability of prospects for a targeted segment of the economy, are the prime reasons to buy ETF stocks and hold on to them. Rapid turnover in ETF stocks requires intense concentration and deep knowledge of a sector, and should be conducted within the boundaries of affordable losses.

 


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