| The best Trading Vehicles have two characteristics | | | | with it, and did Wall Street ever deliver the goods! |
| that are paramount: Price and Liquidity. | | | | Broad based indexed exchange traded funds hit the |
| If you're trading stocks, look for good liquid trading | | | | ground running and never looked back. |
| markets that are tight and fluid. | | | | They have had a profound effect on the way |
| Bid and Ask quotes are narrow and close to the last | | | | investors and the entire investment |
| trade. The quotes have depth to themand can | | | | managementindustry think about investing. |
| accommodate large orders without disturbing the price. | | | | In fact, they have proved so popular they spawned a |
| All this results because of the competition between | | | | universe of sector ETFs on industrygroups. |
| large numbers of market participants. | | | | All the requisites of an excellent trading vehicle are |
| The opposite situation is present in thinly traded | | | | present. |
| markets. | | | | Also, as a trading vehicle, Single Stock Futures (SSF) |
| Lack of large numbers of market participants means | | | | are a traders' dream come true. |
| quotes are wider and smaller in size,resulting in huge | | | | In legal terms, an agreement between two parties |
| "slippage", choppy markets, and disappointing order | | | | where one party commits to buy a stockand one |
| executions. | | | | party to sell a stock at a given price and on a |
| If you can't get in or out of a given market with ease, | | | | specified date. |
| you're in the wrong market. | | | | The contract is completed at expiration or, in most |
| If the trading crowd is not interested in a particular | | | | cases, by offset prior to theexpiration date. |
| market neither should you. | | | | The many advantages are: |
| Go where the action is. | | | | (1) Greater leverage: Lower margins (20% vs 50% for |
| For instance, Exchange Traded Funds (ETF) are the | | | | stocks) and no interest to pay. |
| closest you can get, in a singlesecurity, to being able to | | | | (2) Greater cash flow opportunity: Treasury Bills can |
| trade "the market". | | | | be used as collateral. |
| In appearance they resemble an index fund, but they | | | | (3) Easier and cheaper to sell short: No need to |
| trade exactly like any other stock. | | | | borrow stock, no uptick rule, nodividends to make up. |
| Index funds don't encourage short term in-and-out | | | | SHORTS even earn the "basis" premium that the |
| trading. They call such activity | | | | LONGS pay. |
| "disruptive". And, truthfully, they're right. It is disruptive, | | | | (4) An almost perfect hedging device, SSFs are more |
| distracting, and annoyingto the fund portfolio manager. | | | | efficient than options. No strikeprices involved. The only |
| The ingenious way ETFs are put together, all the | | | | difference in price, between the futures contract and |
| in-and-out trading in the world will notdisrupt anything | | | | theunderlying stock, being the basis which zeros out by |
| inside the unit portfolio. In fact, they were designed to | | | | expiration. |
| accommodate andencourage such activity. Why? | | | | (5) Foreign investors can reduce currency risk. |
| Because the public wanted it, that's why. | | | | (6) Additional sophisticated trading strategies not |
| Traders and investors wanted a vehicle that they | | | | otherwise available. |
| could buy-and-hold, collect dividends,trade, buy on | | | | (7) Broad liquid markets make these ideal trading |
| margin, sell short (without that outdated "up tick" rule), | | | | vehicles. |
| options trade,and whatever else they wanted to do | | | | If you like ETFs, you'll love SSFs. |