A Deeper Look into ETF - Intraday Trading

2007年10月7日 | 分类: 证交所交易基金 - ETF | 作者: Bob 郑俊波 | 281 浏览
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Thank you for reading my ETF column. My name is Bob Zheng. I am a Security Investment Advisor and my job is work with my clients on building wealth through securities investing.In the general section “ETF Vs. Mutual Fund”, an overall description of exchange trade fund is given. A couple of readers (who are conservative investors, by my definition) phoned me about the feature of intraday trading with an ETF. Here let us explore further into this topic.Intraday trading means we can trade (buy and sell), at our own will, during normal public exchange trading hours.

Just think of an ETF as a common stock, although in fact it represents a bunch of common stocks or bonds or other securities. We can buy and sell on NYSE Cocacola in the very same day, so can we with Diamonds, an ETF containing 30 biggest common stocks in the United States, including Coke.

What is the significance about this feature?

- It enables us to lock in our profits and exit the market quickly. We all know that the market cannot keep going up - there must be a pullback after a series of rally. Take Diamonds, just for example. It opened USD133.72 on NYSE Sep 5, 2007 and closed USD140.68 on Oct 5, 2007. A jump of USD6.96 per ETF share, or a 5.2% gain in only a 5-day trading session. This may be too bull for some of us and maybe we start worrying about a potential setback in price. What can we do? Sell it and profit it, leave the market and wait for another good point of time to enter the market again. In this sense, ETF provides a really efficient trading vehicle to investors with a short time-horizon without having to incur too much extra risks, because we are dealing with the whole stock market, not a single stock.

- It enables us to cut our loss and exit the market quickly. We still remember the recent American subprime turmoil. Around mid of July this year the crisis loomed with some subprime mortgage lenders and hedge funds reporting losses. The American, Canadian, European, and other emerging stock markets, all plummeted. The Diamonds opened USD139.63 on July 17 and went down nearly straight to close at USD128.85 on Aug 15. Let us say, unfortunately, we happened to enter the market during these days and were so annoyed by the front-page flooded bad news. What we should do is sell Diamonds immediately to save ourselves a sound sleep. After all your basic belief is that the market will bounce back to its normal trail after the turmoil ends. As long as we can save your investment principle, there are so many money-making opportunities ahead.

Take Diamonds again to conclude this section. We are actually buying the 30 biggest companies in US and thus the non-systematical risks are fully diversified. However we are dealing with only one single security. Therefore we can focus our attention on the analysis of the overall market sentiment and ecomonic outlook, etc, as well as the issue’s specific price movement. Put it another way, investing in the stock market becomes simpler.

For those sophisticated investors who are tired of 90-day lock-in period and 3-5-6-year penalty-bearing holding period with back-end load mutual funds, ETFs are the choice.

Please note: anything contained in this article does not result in any specific investment advice. Investment incurrs risks and past performance does not indicate future performance. No future investment returns can be guaranteed. Please consult your investment advisor prior to investing.

For a further discussion about ETF, you are welcome to contact me. Remember my role is learn with you and grow with you and assist you making your own money. You will enjoy it!

Bob ZHENG 郑俊波 证券投资顾问 647 298 0088 [email protected]