Trading Vehicles
The best Trading Vehicles have two characteristics that are paramount: Price and Liquidity.
If you're trading stocks, look for good liquid trading markets that are tight and fluid.
Bid and Ask quotes are narrow and close to the last trade. The quotes have depth to them and can accommodate large orders without disturbing the price.
All this results because of the competition between large numbers of market participants.
The opposite situation is present in thinly traded markets.
Lack of large numbers of market participants means quotes are wider and smaller in size, resulting in huge "slippage", choppy markets, and disappointing order executions.
If you can't get in or out of a given market with ease, you're in the wrong market.
If the trading crowd is not interested in a particular market neither should you.
Go where the action is.
For instance, Exchange Traded Funds (ETF) are the closest you can get, in a single security, to being able to trade "the market".
In appearance they resemble an index fund, but they trade exactly like any other stock.
Index funds don't encourage short term in-and-out trading. They call such activity "disruptive". And, truthfully, they're right. It is disruptive, distracting, and annoying to the fund portfolio manager.
The ingenious way ETFs are put together, all the in-and-out trading in the world will not disrupt anything inside the unit portfolio. In fact, they were designed to accommodate and encourage such activity. Why? Because the public wanted it, that's why.
Traders and investors wanted a vehicle that they could buy-and-hold, collect dividends, trade, buy on margin, sell short (without that outdated "up tick" rule), options trade, and whatever else they wanted to do with it, and did Wall Street ever deliver the goods!
Broad based indexed exchange traded funds hit the ground running and never looked back.
They have had a profound effect on the way investors and the entire investment management industry think about investing.
In fact, they have proved so popular they spawned a universe of sector ETFs on industry groups.
All the requisites of an excellent trading vehicle are present.
Also, as a trading vehicle, Single Stock Futures (SSF) are a traders' dream come true.
In legal terms, an agreement between two parties where one party commits to buy a stock and one party to sell a stock at a given price and on a specified date.
The contract is completed at expiration or, in most cases, by offset prior to the expiration date.
The many advantages are:
(1) Greater leverage: Lower margins (20% vs 50% for stocks) and no interest to pay.
(2) Greater cash flow opportunity: Treasury Bills can be used as collateral.
(3) Easier and cheaper to sell short: No need to borrow stock, no uptick rule, no dividends to make up. SHORTS even earn the "basis" premium that the LONGS pay.
The best Trading Vehicles have two characteristics that are paramount: Price and Liquidity.
If you're trading stocks, look for good liquid trading markets that are tight and fluid.
Bid and Ask quotes are narrow and close to the last trade. The quotes have depth to them and can accommodate large orders without disturbing the price.
All this results because of the competition between large numbers of market participants.
The opposite situation is present in thinly traded markets.
Lack of large numbers of market participants means quotes are wider and smaller in size, resulting in huge "slippage", choppy markets, and disappointing order executions.
If you can't get in or out of a given market with ease, you're in the wrong market.
If the trading crowd is not interested in a particular market neither should you.
Go where the action is.
For instance, Exchange Traded Funds (ETF) are the closest you can get, in a single security, to being able to trade "the market".
In appearance they resemble an index fund, but they trade exactly like any other stock.
Index funds don't encourage short term in-and-out trading. They call such activity "disruptive". And, truthfully, they're right. It is disruptive, distracting, and annoying to the fund portfolio manager.
The ingenious way ETFs are put together, all the in-and-out trading in the world will not disrupt anything inside the unit portfolio. In fact, they were designed to accommodate and encourage such activity. Why? Because the public wanted it, that's why.
Traders and investors wanted a vehicle that they could buy-and-hold, collect dividends, trade, buy on margin, sell short (without that outdated "up tick" rule), options trade, and whatever else they wanted to do with it, and did Wall Street ever deliver the goods!
Broad based indexed exchange traded funds hit the ground running and never looked back.
They have had a profound effect on the way investors and the entire investment management industry think about investing.
In fact, they have proved so popular they spawned a universe of sector ETFs on industry groups.
All the requisites of an excellent trading vehicle are present.
Also, as a trading vehicle, Single Stock Futures (SSF) are a traders' dream come true.
In legal terms, an agreement between two parties where one party commits to buy a stock and one party to sell a stock at a given price and on a specified date.
The contract is completed at expiration or, in most cases, by offset prior to the expiration date.
The many advantages are:
(1) Greater leverage: Lower margins (20% vs 50% for stocks) and no interest to pay.
(2) Greater cash flow opportunity: Treasury Bills can be used as collateral.
(3) Easier and cheaper to sell short: No need to borrow stock, no uptick rule, no dividends to make up. SHORTS even earn the "basis" premium that the LONGS pay.
posted by zzzzzzzzzzz at
9:00 PM
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