ETFs (Exchange traded Funds also called index shares) track a specific group or basket of securities and they are traded continuously on the major exchanges like an ordinary stock. The first pioneering big daddy of the ETFs (Exchange Traded Funds) was the Standard & Poor's Depositary Receipts (AMEX: SPY) - also known as SPDRs - which was introduced n the AMEX exchange in 1993. Then the DIA Exchange Traded Fund (also known as Diamonds) was lunched. The DIA stock tracks the DJI index - a basket of the 30 Dow stocks. later the NASDAQ 100 Shares (QQQ also called as Qubes) started trading on the Nasdaq Exchange. The QQQ stock tracks the 1/40 of the the NASDAQ 100 performance. Even the ETFs are considered as relatively young trading vehicle, the have become very popular in very short period of time.
One of the main reason of the ETFs popularity, especially when it comes to the index tracking funds, is that these funds covers indexes which allow to diversify the portfolio by investing to a single share. Basically, with introduction of the Exchange Traded Funds investor received an ability to trade indexes in the same way stocks are traded.
Another important advantage is that ETFs can be sold short and bought on margin. While it could be considered as more risky type of investments fo experienced investors it can be useful. In addition to the margin trading you may find whole families of double and triple leveraged funds.
For many traders with a long-term goal Exchange Traded Funds may deliver of ETFs without falling into the trading traps that are custom for stock traders. Investing via ETFs could be quite rewarding to the portfolio, and it is a great alternative to mutual funds.
By trading the index, you eliminate many complicated questions you run into when you trade stocks As an example you do not have to spend time and resources to pick the right company, to select the correct industry, study balance sheets and other companies' reports, and other complicated stuff that usually goes along of trading individual stocks. Best of all, you may completely focus your resources on technical analysis as al the fundamentals are already done for you by index managers.
The price and volume of individual stocks fluctuate with unpredictable events such as news, rumors and earnings reports. By tailoring our indicators for the Indexes, we reduce the uncertainty by dealing with numerous stocks together. The volatility of any one stock in our indicators is diluted.