What are ETF shares?

Exchange traded funds (ETF) are index funds or trusts that are listed on a stock exchange. Every trader can buy or sell his shares easily. Each ETF share represents a group of several stock shares (or another asset like a commodity or currency).

An ETF trader can easily participate on the performance of several different indexes – broad-based, sector-based, international - or bonds or even commodities or currencies.

ETFs are very popular now because they offer a good choice for trading several markets very easily. It’s now possible to buy “index ETF” and participate on the performance of this index. A trader need not buy every stock in the index in predefined amounts; he can easily buy index-based ETFs!

ETFs have also several others advantages:

• no problem with liquidity

There’s no problem with liquidity of ETF stock. Bid and ask are always calculated from prices of underlying stocks. So it isn’t necessary to have good trading volume in ETF.

• reduced risk

Individual stocks can make wild swings sometimes. Important news can move the price of individual stock down rapidly. Not in ETF. Every individual stock is only part of a basket of ETF stocks, so a move in one stock will not produce a huge move in ETF share value.

There are several companies issuing ETF shares. It is up to every trader which one will be used for trading.

I noticed that technical analysis has been working with ETF much better than with individual stocks.

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