Exchange traded funds (Etf) became the most popular trading tool for index markets since year 2000 or so. With our index trading system we can count on one etf for each market index to carry our trades.
This trading tool is the simplest one you can find. For each of the 3 market indexes we covered in our index trading system there are one exchange traded fund (Etf) related to each one.
Let’s first define what is an Etf. First an ETF is exactly like a stock. It is traded the same way. An ETF on SP500, NASDAQ 100 or the DOW JONES represents exactly the underlying index. So if the index moves in one direction the underlying ETF will do the same. It is very flexible. The management fees are much lower than a standard mutual fund because it is a closed fund. Once an ETF fund is released on the market there are no new shares offered to the public.
Those etf stocks varies exactly as the index and as any other stocks, you can buy and sell at anytime during the day unlike the mutual funds, where you might have a time limit to put your order in to get the current day price. Also when using an exchange traded fund (Etf) you pay the price at the moment you buy, not the day closing price, like mutual funds.
For those interested in such exchange traded funds (etf) trading toll, here are the names and ticker symbols for those Etfs :
S&P Depos Recpts (Trades at AMEX under the ticker SPY)
NASDAQ 100 Trust (Trades at AMEX under the ticker QQQ)
DIA Diamonds Trust (Trades at AMEX under the ticker DIA)
S&P TSE 60 IDX (Trades at Toronto Stock Exchange under the ticker XIU)
The only disadvantage with this instrument could be the brokers fees. If you don't have a lot of money to invest, make sure the brokers fees are low. I know that if you open accounts with firms like Ameritrade (8$) or Scott-Trade (7$) or Interactive brokers LLC (1$ for 100 shares) their fees are low per transaction, assuming you put your order in through the Internet. So verify that with the institution you choose that transactions fees are as low as possible. People with as low as 1,000$ dollars to invest might have some problems to use this type of vehicle, because of the brokers fees that you have pay when you buy and again when you sell.
If you have a small amount of money to trade and want to use etfs, also check the minimum shares you must trade with your selected broker. For example if you want to buy SPY which trade above 100$ you will have to spend 10,000$ for 100 shares. So verify if you can buy less than 100 shares with your selected broker.
Click here to see the list of recommended discount brokers
We do use Exchange traded funds to carry our trading for our personnal account. We feel etfs are much more flexible than index mutual funds.
Click here to see SP 500 performance using exchange traded funds like SPY
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