ETF Store Insight

The Benefits Of ETFs

December 23rd, 2009 by ETF Store Staff

One of the most favorable characteristics that ETFs have is their flexibility, or ability to be traded like stocks (Forget Stocks). 

This characteristic is beneficial because it enables an investor to get continuous intraday pricing and the ability to buy or sell a basket of securities throughout the trading day.  This further translates to pricing transparency, in that at any given time, an investor knows exactly what the price of an ETF is.

Additionally, ETFs can be sold short, just like stocks.  This characteristic enables investors to bet against an entire sector, region, etc., as opposed to just one stock.  For example, if an investor wants to bet against financials, they can short the Financial Select SPDR (XLF) which will give them short positions in Bank Of America (BAC), JP Morgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC) all in one trade; this will also reduce transaction costs.

Some other characteristics of ETFs include that they can be traded on margin and investors have the ability to buy/write call or put options on the ETFs.  ETFs also enable one to manage risk relatively easily through the use of limit and stop loss orders (Something To Consider With ETFs). 

When it comes to choices, there are plenty of ETFs to choose from.  There are basic indexes like the S&P 500 SPDR (SPY), sector specific indexes like the iShares Dow Jones US Real Estate (IYR), commodity based indexes like the US Oil Fund (USO), country specific indexes like the iShares MSCI Malaysia Index (EWM), currency specific indexes like the CurrencyShares Japanese Yen Trust (FXY) and many more.

In fact, ETFs continue to gain popularity as illustrated by the total net inflows of $14 billion in November, which marked the ninth straight month of net inflows into ETFs.