Understanding Exchange Traded Fund (ETF) Commodity

An ETF is an exchange-traded fund (ETF) traded on the various stock markets. An ETF commodity is a purchased share in a pool of related securities. For example you may buy into an ETF that combines the futures of several different oil and gas companies.

As those companies stock values change the value of your ETF commodity also changes. ETF Commodities can be bought and sold on a stock exchange in the same manner that company stocks are. Each ETF commodity is very similar to a mutual funds which amalgamates the returns and values from several different companies.

The very first ETF commodity options were designed and created to track important stock market indices including the S&P 500 and the NASDAQ 500. In today’s stock market culture there are hundreds of ETF commodities to choose from thus giving the average investor access to trading areas including futures, corporate bonds, and global stock exchanges.

Exchange-traded funds are not as regulated and managed as are mutual funds mainly because they follow very closely with the stock prices associated with the firms within the ETF. Pricing of the funds may fluctuate however the market sets the value of the funds over time.

ETFs also allow a small investor to engage in trading ETF commodity options. These options are a good way to invest in industries like gold and currency without exposing your portfolio to too much risk. For example if you buy a call option on an ETF then you reserve the right to buy that ETF at a set price and profit if the commodity price rises over that call price.

ETF commodity options also allow you to sell a call option which basically means you are shorting the ETF commodity. You can also place Put calls against ETF Commodities. Placing a Put call against the fund is another way to invest in a market segment without investing in a specific stock in that industry.

There are a few things you need to consider before you buy a into an exchange-traded fund. These are the very same considerations you apply to a normal stock purchase. You must consider the purchase of an exchange-traded fund based on your investment strategy.

Does buying a particular ETF fit with your current investment strategy? Will it be profitable in your portfolio? Does the ETF fit your investment horizon – is this a long or short term investment based on the commodities within the industry? Research your chosen ETF and all of its holdings. Ensure the various companies within the fund will not negatively impact the fund and drag down the value of your stock portfolio. Any stock purchase requires you perform your due diligence.

ETFs also need to be investigated for costs, commissions and fees. Always ensure that the cost of the stock, the broker’s commissions and any fund fees do not impact the bottom line. Finally make sure you have studied the tax implications of any planned ETF purchase. US based funds offer nice tax advantages for US buyers however if you are considering foreign EFT makes sure your purchase profit can overcome any potential tax bite.

In conclusion, ETFs are a very enticing stock instrument. The ease of which they can be bought and sold add to their advantage as a financial investment. Consider Exchange-Traded Funds when searching for ways to build your stock portfolio.

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