Benefits of trading ETFs

Finance Articles | June 24, 2008

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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ABOUT THE AUTHOR

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. After trading for a while I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.