Day Trading Profits Secrets - Trading ETF's

Trading an ETF or Exchange Traded Fund is a viable option to trading some of the big futures contracts such as Natural Gas and Gold. The reason to do this would be to use a much smaller margin and reduce your risk exposure to the trade. ETF's are similar to traditional mutual funds, they are structured as open end management companies. ETF's are Traded as CFD's. (contract for difference) Have a look on your trading platform. You will see the full range available.

To simplify, an ETF is a way of trading a group of, or single commodities in much the same way as you would trade stocks and shares. If for example you wanted to trade 1 Natural Gas futures contract your margin would be around $7000,(57,000) but you could get exposure to this market by trading 10,000 ETF's-CFD's, with a margin as small as $550. ($106,000)

In the above example the futures contract has a higher margin cost for a lower overall contract value, but the value per point is much higher for the futures contract and therefore is considered to be far more risky, hence the higher margin.

This may sound confusing but those familiar with trading stocks as CFD's will have no trouble adapting to the ETF. Another reason you may want to trade them is that, say you want to trade gold, but your not sure about taking a futures trade. You could buy some stocks or CFD's in a gold mining company.

The problem here is that the value of the stock may not be linked to the gold price, if for example the gold mining company was having some management or location problems. A gold mine in Tanzania is a t risk of theft; this could affect its price even if the price of gold was rising.

So now you could buy some ETF CFD's in Gold. You control your exposure. And you can buy and sell in the blink of an eye as with any other platform traded instrument. If you are a more sophisticated trader you may use your old ETF's as a hedge for your gold futures contracts.

In this example

Here is a list of some of the most common.

DBA power shares agricultural fund wheat corn and soya beans

DBD base metals fund aluminum copper

DBC general overall commodity index, heavily weighted to crude oil

DBE energy fund crude heating natural gas

DBO pure oil fund replicates behaviour to oil

DBP precious metals gold and silver

DBS silver fund

DGL pure gold fund

UNG natural gas fund

Don't let the unfamiliarity of any traded product stop you. It is just a matter of researching the market and asking questions of your broker. But be sure you have a good understanding before trading.

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