Monday, December 21, 2009

Making An ETF Trading System Work For You

By Patrick Deaton

If you're a small investor -- which most of us are, in relative terms -- you'll need an ETF trading system if you want to trade in an ETF itself. These exchange traded funds are potentially excellent investment vehicles which are basically trusts or index funds that represent a broad basket of securities of all types.

Exchange traded funds resemble somewhat the way that mutual funds operate and are ran by fund managers. Think of them as a kind of corporate stock in the way they are traded and you'll begin to understand how an investor or trader can do well at it. These ETFs are all tied to one of the many different market indexes that exist out on the markets, which helps investors tracked trading trends.

At any rate, exchange traded funds tend to restrict membership in the fund to what it refers to as authorized participants which, in this case, means those really big investors that can afford to buy and sell large blocks of assets. There is a way, however, for a small investor -- who in many cases may have starting capital of only $5000 -- to get in by using an ETF trading system.

These trading systems stand-in for large investors and represent all of their small investors participating in the trading system on that day to the ETF fund managers. The trading systems will also execute any trades that the people investing in the trading system that day are calling for. Remember, small investors must settle by the end of the day with the trading system.

For those who are interested, they should take some time to search on the Internet for quality ETF trading system, and there are numerous ones out there. Most establish right up front how easy they are for user to take advantage of, so for those just starting out it's probably a good idea to go with something rated as easy. You should plan on investing at least several thousand dollars to start.

After a trading system has been identified, look to see what sort of trading strategy it allows the investors participating in the system to utilize. Normally, they will allow one very broad strategy such as trend following. This one -- which basically means you'll be tracking trends and then acting on them -- is probably the most common. It's a way to make money on many movements.

As in any other market -- whether broad or just a sector or some other sort of investment area -- you'll be looking to pick out certain movements and then trading based on those movements. You may be buying a stock at a low price and then selling it a few minutes later when the price rises, which is a common strategy. You'll be trying to make money based on many small margin movements, basically.

The basic requirements people should be looking for when it comes to a quality ETF trading system is that it has easy to understand rules and has an acceptable amount of risk. Picking the right one and then learning to work it well can greatly increase the chances of making a good income based on trading activities throughout the day or in one single trade. Make sure to check the system carefully before using it. - 23204

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