Exchange Traded Funds (ETFs) Glossary

Category: By Investment Strategy

Tips: Exchange Traded Funds and Mutual Funds

By comparing ETFs to the mutual funds following advantages could be found:

1. Intraday Trading: Mutual funds are always traded at the market close once a day and no matter when you place order to buy/sell mutual fund your order will be filled at the same time (at market close) and at the same price as orders of all other investors. Exchange traded funds could be traded as stock and you can purchase or sell them during the market trading hours. The ETFs provide investors with intraday trading flexibility of stocks which allows benefiting from the intraday price movements;
2.  Ability to Sell Short: As a rule when by investing into mutual funds a trader buys them - a trader cannot sells them short to open a position. For this purpose a trader has to look for inverse or Bear funds. That means that traders have switch between bull and bear funds or participate in trading only in Bull markets (as a rule only index funds has inverse funds). In case of ETF, as was mentioned above, a trader trades it as stock, furthermore, he/she may sell it short and participate in Bear markets as well without looking for additional trading vehicle. Because of that, ETFs provide investors with wider range of speculative trading strategies in comparison to mutual funds;
3.  Low Cost: Exchange traded funds are considered as cost efficient trading tools. Because of their low cost a lot of professional and retail investors chose them for investments.
4. Tax Efficiency.

ETFs within the "By Investment Strategy" category (including subcategories):