Few investments can perform like Leveraged ETFs when a market has a sustained move in one direction. Over the past 2 1/2 years one of the most prolific bull markets has been in silver. The other day when silver hit $50 I was looking at charts of the Double Silver ETF (AGQ) and the Double Short Silver ETF (ZSL) since inception. They were both amazing looking charts, but you don’t get the full sense of the magnitude until you actually figure out what would’ve happened to a $10,000 investment.
one hour payday loansAt the time these ETFs began trading the silver ETF was at 9.20 and AGQ was at a split adjusted $22. On the day silver first hit $50 ($49.75 actually) SLV hit a high of $47 and AGQ hit a high just over $362.
If you would have put $10,000 into the Double Silver ETF (AGQ) on the first day of trading (Dec 1, 2008) it would’ve been worth $164,545 on the open April 25, 2011. This would be a gain 1545% gain on your investment compared to 411% in SLV (ending value of $51,086).
On the flip side lets take a look at how big of a disaster it would’ve been to buy and hold the Double Short Silver ETF – ZSL. If you had bought the Double Short (ZSL) your $10,000 would have been worth $112 or a loss of 98.88%.
Do you want to submit a market order? With a market order, your purchase (or sale) is filled at the next available price. Market orders usually go through promptly.
Do you want to submit a limit order? With a limit order, you instruct the broker to buy a stock only if you can get it at or below the price you set or sell it at or above the limit price. It’s possible that your limit order may not be executed if the stock doesn’t hit the price you’ve specified. You can always reset your limit.
Given the volatility of the stock market nowadays, it’s probably wise to employ a stop order to protect yourself from a big drop in the price of an ETF you own. There are two types of stop orders.
With a stop-loss order, your trade automatically becomes a market order once the designated stop price is hit. You may or may not get that price. And if the market is in free fall, as it was on May 6, you might sell for far less than the stop-loss price.
You may be better off using a stop-limit order in light of the potential danger of getting an unexpectedly low price. With this technique, your order goes live once the ETF hits your designated price. But the sale goes through only if you can get the limit price.
You can add other terms to your trades. For example, if you specify a day order and the trade does not go through that day, it is automatically canceled. Or your order can be good ’til canceled. When you’re ready, press the execute button and start watching for an order report.
Actually, ETFs are like stocks too >
A bit like a mutual fund.
Like a mutual fund, an ETF represents a basket of securities. Generally tracking indexes, ETFs provide exposure to a particular segment of the market, such as a broad market, sector, or geographic area. When you buy an ETF, you’re getting exposure to all of the securities the ETF holds, which makes it easy to use ETFs to diversify your portfolio.
And a bit like a stock.
Like a stock, an ETF trades on a stock exchange (hence “exchange-traded fund”), and you can buy or sell shares at any time during the trading day. The price is determined by supply and demand for the fund in the market. As with stocks, you typically pay a commission for each trade.
Exchange-Traded Funds (ETFs)
Exchange-traded funds, or ETFs, are investment companies that are legally classified as open-end companies or Unit Investment Trusts (UITs), but that differ from traditional open-end companies and UITs in the following respects:
ETFs do not sell individual shares directly to investors and only issue their shares in large blocks (blocks of 50,000 shares, for example) that are known as “Creation Units.”
Investors generally do not purchase Creation Units with cash. Instead, they buy Creation Units with a basket of securities that generally mirrors the ETF’s portfolio. Those who purchase Creation Units are frequently institutions.
After purchasing a Creation Unit, an investor often splits it up and sells the individual shares on a secondary market. This permits other investors to purchase individual shares (instead of Creation Units).
Investors who want to sell their ETF shares have two options: (1) they can sell individual shares to other investors on the secondary market, or (2) they can sell the Creation Units back to the ETF. In addition, ETFs generally redeem Creation Units by giving investors the securities that comprise the portfolio instead of cash. So, for example, an ETF invested in the stocks contained in the Dow Jones Industrial Average (DJIA) would give a redeeming shareholder the actual securities that constitute the DJIA instead of cash. Because of the limited redeemability of ETF shares, ETFs are not considered to be—and may not call themselves—mutual funds.