Leveraged and inverse ETFs. Geared products are not suitable as an introductory investment for those new to ETFs. The leveraged and inverse products provide twice or three times the long or inverse daily returns of the underlying index. Most argue that leveraged and inverse ETFs are suitable for short-term hedging or for aggressive traders who know what they are speculating on. [What Are Leveraged ETFs?]
Trigger happy investors. While investors can trade ETFs like regular stocks, it does not mean people should be playing ETFs on a day-to-day basis. Instead, investors should implement a strategy to help rein in emotional trades. For instance, we follow the long-term, 200-day exponential moving average to help show us when we should be in or out of an ETF. [An ETF Trend-Following Plan for All Seasons]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
