ETFs have a lot of advantages, but it’s easy for their ability to offer bespoke exposures to particular slices of the market to overshadow their ability to play events – namely, earnings. Each earnings season has its drama, but with so many looking for signals about a recession this year, this earnings season requires quick thinking. As such, here are some ETF trading tips as earnings season starts in earnest.
Tip 1: Know Which ETF is Best for a Given Stock
This tip may seem pretty obvious, but the names of ETFs can be deceiving. Not every tech ETF weights Apple (AAPL) the same, nor does every AI-focused strategy necessarily even include the same semiconductor names.
VettaFi’s ETF Database offers the ETF Stock Exposure Tool to find which ETFs have the strongest weight for a particular stock. Some companies like Taiwan Semiconductor Manufacturing Co. (TSM) have different shares under different names, but the tool can be a great starting point for those looking to play positive – or negative – earnings news.
Tip 2: Take Care to Buy or Sell Outside of Big Market Vol Moments
Most of us are familiar by now with more general ETF trading tips about limit and market orders, what time of day is best to trade, and how advisors can use trade desks to spool up multiple orders at once. By the same token as knowing what times of day are best for ETF, take care to plan trades for days that don’t also have Federal Reserve meetings or announcements planned.
See more: “Tools for Advisors: Maximize Your ETF Trading”
Big data points dropping, too, have had a notable impact on markets lately – with so much uncertainty around, markets take any sign or announcement of notable data from the markets and may be taking it for more than it is. Whatever the case, just because an ETF has a low fee and is weighted just right to that particularly appealing small-cap stock doesn’t mean that it’s impervious to a hot inflation print.
Tip 3: Be Careful With Leveraged Strategies
The riskier investors will surely be familiar with the idea of leveraged ETFs, whether inverse or positive. With up to 3x returns offered by some of these strategies, they have the potential to move quickly in either direction.
As such, it’s important to remember that these strategies are meant for daily trading and really can’t be left to their own devices for long. While they do often come with this notice in their fund materials, ETF trading tips would do well to remind ETF investors and advisors to take care and pay close attention when handling such potent strategies.
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