An Exchange Traded Fund is a type of security that tracks a commodity, index, sector, or other assets. The ETFs are traded just like stocks where you can buy and sell them on exchanges. While ETFs are a great way to invest, there are different types of them that you should keep in mind.
Bond ETFs include government bonds, corporate bonds, state bonds, local bonds; also known as municipal bonds.
Commodity ETFs include commodities like gold or crude oil.
Currency ETFs are like FOREX, but you don’t directly invest in foreign currencies. The Currency ETFs can include multiple or a single foreign currency.
Industry ETFs track a single industry like finance, oil and gas, technology, and more.
Inverse ETFs are a bit different than the above as they make the investors money by attempting to earn gains from stock declines by shorting them. What is shorting stocks though? It’s when purchasing a stock with the intention to sell the stock and expect a decline in value, then repurchase at a lower price.
How to trade ETFs?
You’ll need a brokerage account to trade ETFs like any other security. If you already have a brokerage account, you can see if you can buy and sell Exchange Traded Funds. It’s a great way to invest and generally, ETFs are riskier than stocks for most investors with a higher return of investment.
One thing to know about trading ETFs is that the ETF settlement is usually two days after the trade is placed. Since the settlements take longer than traditional open-end mutual funds, you should keep an eye on the settlement duration as it can cost you money if the settlement doesn’t happen for prolonged periods of time.
Day trading ETFs
Due to the nature of how ETFs are traded, you might wonder if you can trade them daily. If there’s an answer you’re looking for on that, know that you can trade ETFs daily or even swing trade ETFs. What you need to keep an eye on is the risk, not whether you can day trade or not. If a security is going to make you money, how and when you can trade shouldn’t be that of a problem after all.