I have a few questions about currency ETF’s (exchange traded funds)? Please help/advise. Thanks.?
I am 18 years old and I’m a new investor in the stock markets. I invest into smaller companies with growth prospects. Something new has hit my mind; ETF’s, or exchange traded funds and the ones that interest me are the currency ETF’s. I have a few questions as follows:
1) I want to know if you can go short as well as go long, i.e. if you have for example, say, a holding in a company’s stock, and you thought it was going to fall, could you use ETF’s to hedge your holding in that company and profit from the decline in the stock value?
2) I think, or at least I have worked out that currency tends to trend longer term trends, either up or down. Would it be possible to follow these trends whatever the direction, up (long), or down (short) and score a huge return in 1 year such as 100%+ if you compound your currency ETF’s investment capital and profits?
3) Are currency ETF’s good for day trading, or at least playing short term trends and compounding your profits throughout the year and scoring high returns, beating the big boys?
This is all I’d like to know. Thanks for all help.
May 22nd, 2010 at 1:00 am
1) You can short ETFs. There are also ETF which are short by design, or even leveraged short (example: SKF = 2x short financials).
A stock ETF is typically designed to track an index or basket. It would not be an effective hedge on a single stock. A more appropriate hedge would be to buy put options.
2) Theoretically possible, yes. Likely, no.
3) Currency ETFs are fine for trading. Beware that they can trade at either a premium or discount to NAV. Commissions and bid/ask spreads add up, detracting from profits or adding to losses.
Your enthusiasm for investing is terrific, but you should continue to learn. Expecting to “beat the big boys” as a novice is not realistic.
May 22nd, 2010 at 1:22 am
Open a mini or micro account with a forex broker like Forex.com and trade the real deal – forex spot/cash market.
Download NinjaTrader for free, and you get a free data feed also; costs nothing to see the forex market. Instead of paying a commisson, you pay the spread. There is no expiration, hold long or short as long as you like.
Download NinjaTrader trading platform here, ask for Kevin O’Grady, he’s traded on the floor; good guy.
http://www.ampfutures.com/index.php
Currency ETF’s trade just like a marginable stock, short, long, whatever. But the liquidity is not very good for Day Trading; probably good enough for long-term. You can hold ‘em until the cows come home.