What is an ETF?
An ETF is a stock that reflects an index. There can be several different ETF's that track the same index. It is worth noting that ETF's can also follow real estate, bonds and gold etc. However the most popular ETF's follow index's.
An example ETF would be SPY which follows the S&P 500. If the S&P 500 went up 1% then its ETF (SPY) would also go up by around 1%.
The idea of ETF's is to allow people to trade the market as a whole and not just an individual company. The benefits to trading ETF's are;
- they are less prone to erratic price movements. This is because you are trading the market as a whole, and not just an individual company (whose bad earnings report could make a major impact to its share price).
- they are very liquid so you can buy and sell them quickly.
There are also ETF's that double whatever the index does. An example is DDM which will go up around 2% if the Dow Jones 30 went up by 1%. These ETF's can provide very powerful investment vehicles and are often used by day traders looking for large quick profits.
DIA - Follows the Dow Jones 30
QQQ - Follows the NASDAQ composite
SPY - Follows the S&P 500
Some ETF's that double what the index
does are;
DDM - Doubles what the DIA does (ultra long)
DDQ - Short doubles what the DIA does (ultra short)
QID - Short doubles what the QQQ does (ultra short)
QLD - Doubles what the QQQ does (ultra long)
SDS - Short doubles what the SPY does (ultra short)
SSO - Doubles what the SPY does (ultra long)
