When investing in Exchange Traded Funds (ETFs) there are times when traders will run into situations where they are buying or selling or shorting shares of an ETF that may not be very liquid. For active traders wanting to short a particular ETF they must know several ways to do so if they can't get shares short in the first place.
This means changing the strategy to compensate for the lack of shares available to short. How is this done though? Larry from Trading Markets suggests three great strategies to utilize for short selling ETFs (shortened for length):
- Trade the inverse of the ETF. For example the inverse of the QLD is the QID.
- If there is no 1x inverse, trade the 2x inverse with 1/2 the dollar amount. Therefore if you wanted to short the FXI (China) and couldn't borrow the ETF, you would go long 1/2 the dollar amount of FXP which is the 2x inverse of FXI.
- Open multiple brokerage accounts. This means sprinkle money with a few brokers. You'll use these accounts for your short selling. If your primary broker doesn't have the ETF, you go to your secondary brokerage accounts in order to potentially get the trades off.
Trading ETFs successfully does not have to be difficult. By understanding and knowing all the ETFs available to be traded investors can easily adjust their investment strategy to maximize returns through these low cost investment vehicles. For ETF trading ideas take a look through some of the articles featured below.
More on ETFs:
- 40 Inverse ETFs For Bearish Investors
- 24 Ultra Long ETFs For Bullish Investors
- Invest in Water ETFs
- Explore Alternative Energy ETFs
- Triple Leveraged ETFs
- ETFs vs ETNs, the Difference
- Understanding Currency ETFs
Strategies for Short Selling ETFs
Larry Connors, TradingMarkets.com
Yahoo Finance, Tuesday June 2, 2009, 8:45 am EDT