Trading Articles

Technical Trading and Exchange-Traded Funds Go Hand in Hand

The era of globalization is upon us, and as the global economy has expanded, so have the many opportunities that await the active trader in a broader array of investment vehicles.  One genre that has actually reduced the risk associated with securities trading is the exchange-traded fund, or “ETF”, community of offerings that combine diversity with diversification to yield a trading platform that can approach any medium of investment return on the planet.

Many investment guides are touting the benefits of trading with ETF’s alone, since they are safer than individual stocks, you can access multiple global markets, and you can transact business as freely as you can with any other stock on an exchange, using leverage where desired or shorting techniques when markets turn negative.  Due to the newness and increasing variety of offerings, efficient pricing mechanisms have yet to dominate, suggesting that the field may represent a speculator’s paradise at present.  A variety of technical trading strategies have yielded impressive results over the past decade, and the volatility in global markets portends opportunities going forward.

The biggest movers in the past few years and of recent note have been the emerging market funds, coupled with funds that focus on specific hard or soft commodities.  Decades of off shoring activities, employed primarily by companies in the advanced economies of the world to get lean and mean and more competitive, have enriched countries like China and India and those that are trying to emulate their examples.  The manufacturing engine of the world has moved to Asia, and with it, jobs, wealth, and the potential for high returns.

Emerging market ETF’s offer access to these markets, but with any investment overseas, there also comes what is referred to as forex risk.  Your selected fund will hold securities in their native currencies until sold.  If the U.S. Dollar appreciates versus the respective security’s currency, the actual return will be diminished, or in some cases, made negative.  There are option tools that forex brokers can provide to hedge this risk, but forex hedging is not for the inexperienced.  However, for the active trader that follows the trends in the greenback’s health, there are periods when the Dollar is depreciating, and during these periods, the return on foreign investments is actually enhanced by currency appreciation effects.

Commodities have been the hot items of late.  Prospering middle class populations in both China and India are desirous of living the Western lifestyle, complete with better homes, cars, clothing, electronic gadgets, and, of course, food.  Economists expect these trends to continue for at least twenty years and put added demand pressure on all commodities from gold, silver, and copper to corn, wheat, and especially cotton.  The run up in value of related ETF’s in the past seven months is but a precursor of the action that is coming down the road.  Experts agree that there is just not enough of these commodities to go around.  Intrinsic value may appreciate over the long term under these conditions.

Demand for commodities and emerging market dynamics are just two worthwhile areas to focus on in the coming years when pricing behavior warrants and technical indicators signal high probability trading opportunities.  However, there is another element that economists agree will be in abundance over the next two decades, and that is volatility.  The road will be rocky, but once again, speculative trading is all about using volatility to your advantage.

Forex Traders – http://www.forextraders.com

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