An ETF is a unique investment that combines features of stocks and index funds. Like stocks, they can be traded any time during the trading day on a stock exchange. Like index funds, they represent an investment in a pool of financial assets or securities that mimic the performance of a specific index. Here are some compelling reasons why you should be trading ETF’s:

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#1) ETFs are safer than single stocks or commodities or currencies. Because they represent a basket of underlying assets, you are automatically diversified for risk and not dependent on the fortunes of a single financial asset.

#2) You can trade an ETF just like an equity on the stock market. You can therefore trade long or short, trade on margin with leverage and use limit orders and other risk management techniques.

#3) ETFs rapidly growing in popularity and you could choose from a wide range of ever-growing investment vehicles to suit your particular investment objectives.

#4) You have access via ETFs to a wide range of markets such as commodities. You could for instance trade oil or gold in a most convenient fashion. You could also trade country ETFs for geographical diversification (the hottest investment destinations in the next 40 to 50 years are reckoned to be Brazil, Russia, India and China and you could take advantage). If you have an interest in forex trading, you can trade currencies via ETFs.

#5) ETFs represent an excellent long-term investment vehicle for long-term investments such as 401 (k) plans. After all the objective of any long-term investment is a risk diversification with the prospect of growth. An ETF allows you to do so in a simple and straightforward fashion without the need for complicated strategies while allowing you to control risk.

#6) ETFs present an excellent way to hedge your investments. The ideal hedge security is normally a security that is highly liquid with high trading volumes so that you can buy or sell any kind of market conditions. You could for instance hedge an existing portfolio of equities by going long or short on the appropriate ETF. This works both for short-term and long-term hedging.

To buy and sell ETFs, you need to open an account with a broker. If you have an existing broker who is reliable, find out if you can trade through him. Set up a sensible investment plan in consultation with your broker and use all the risk management techniques you need. Remember, that like stocks, you will have to pay a commission to your broker each time you perform a transaction.

Finally, here are some trading tips from leading experts:

-your maximum investment in any single ETF should not exceed 10 percent of your total portfolio

-track the performance of your ETF’s. You can do this by tracking the performance of the appropriate index fund.

-some traders recommend that you set up order with your broker to automatically sell any ETF that loses five percent to 10 percent of its value in a single trading day.