Advantages of Trading ETFs

Ever since its introduction in 1993, Exchange Traded Funds (ETFs) remain one of the most popular trading instruments. Trading ETFs offer many advantages to short-term and long-term traders over equities, index funds and bonds. Here are some advantages of trading exchange traded funds.

• ETFs are actively traded just like stock. This makes them easy to day/position trade, short sell and trade on margin.
• ETFs are liquid trading instruments making them flexible to handle.
• ETFs ensure diversity of trading portfolio.
• Variety of ETF products available for trading including index and sector based ETFs, currency ETFs, International, regional and country specific ETFs and industry based ETFs with various risk and return levels.
• ETFs certainly have low expense ratios than index funds.
• Fixed income and some equity ETFs pay dividends just like funds and stocks.
• ETFs are more tax efficient than stocks and index funds.

But like stocks, trading exchange traded funds involves risks and are not suited for traders/investors with little market knowledge. Trading ETFs also involve brokerage fees and minimum margin requirements which differ with brokerage firms.

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