By: Montana Timpson
2021’s torrid ETF rally has seemingly come to an emphatic end, with many high-flying exchange traded funds reversing course since record market highs in February of this year. High growth stocks, including tech companies, SPACs and initial public offerings, are showing massive drawdowns, and even cryptocurrencies — though surprisingly resilient as of recent — seem to be following suit. Value ETFs, on the other hand, are faring fairly well as inflation fears impact the market.
Whether bullish or bearish on growth or value ETFs, there are key fundamentals to exchange traded funds that every professional investor should know. Here’s your extended guide to exchange traded funds and how to trade them with Lightspeed.
Exchange Traded Fund (ETF) Definition
An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity or other asset, similarly to a mutual fund, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange and fluctuate in price throughout the day just as the price of individual securities do.
ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities and can even be structured to track specific investment strategies. Because there are multiple assets within ETFs, they can be a popular choice for diversification many professional traders.
There are various types of ETFs available to investors that can be used for income generation, speculation, price increases, and to hedge or partly offset risk in an investor’s portfolio.
For the professional and active trader, industry ETFs are often heavily sought out. These exchange traded funds track particular industries such as technology, banking and the oil and gas sector.
Other types of ETFs include bond ETFs (tracking government bonds, corporate bonds and municipal bonds), commodity ETFs (investing in commodities including crude oil and gold), currency ETFs (following foreign currencies) and inverse ETFs (often executing as exchange traded notes, or ETNs).
How to Trade ETFs
ETFs trade through online brokers and traditional broker-dealers and can be bought and sold on Lightspeed Trader just like regular stocks.
The Lightspeed Trader platform provides active traders with extensive trading tools to implement various trading strategies and styles and caters extensively to those seeking ETF trading opportunities.
As with traditional equities trading on the Lightspeed Trader platform, traders can execute traditional buy and sell orders of a multitude of available ETFs. With advanced options trading, traders can also easily build and trade complex ETF options strategies like debit and credit spreads, straddles, strangles and butterflies. In addition, complex order entry functions allow traders to quickly and easily select, stage and send complex options strategy orders.
For more information regarding Lightspeed Trader and other available trading platforms, visit Lightspeed’s Trading Software webpage, and for more professional trading insights, check out Lightspeed’s Active Trading Blog.
Active Trading with Lightspeed
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