New ETF Book by Larry Connors - Click here to read more
| TradingMarkets.com
For more than a decade, financial stocks have been the rock stars of the stock trading world. While the dot.coms rose and fell like so many reality show winners, financial stocks have been among the stocks that traders of all styles have chosen when looking for big moves - to the upside and downside.
This makes financial exchange-traded funds, ETFs that track the price movement of the major financial stocks of the day, some of the most widely-traded exchange traded funds in the stock market.
If you don't know about financial exchange-traded funds or why traders are trading ETFs like these, then its time you met two of the heavyweights of the division: the ProShares Ultra Financials and the ProShares UltraShort Financials ETFs.
The ProShares Ultra Financials ETF, UYG, (UYG | Quote | Chart | News | PowerRating), is an exchange-traded fund that tracks the Dow Jones U.S. Financials Index, an index that includes such stocks as JP Morgan (JPM | Quote | Chart | News | PowerRating), Wells Fargo (WFC | Quote | Chart | News | PowerRating) and Bank of America (BAC | Quote | Chart | News | PowerRating). The ProShares Ultra Financials ETF, UYG, has an average daily trading volume of more than 49 million shares.
Not only does the UYG track this index, but also the UYG is leveraged two-to-one. This means that the UYG will move as much as two times or more as the Dow Jones U.S. Financial Index.
It is this leverage that makes the UYG among the more attractive of the financial ETFs. Leverage, of course, goes both ways, and the same leverage that can bring quick gains can also bring quick losses. Traders should adjust their exposure to leverage accordingly.
The ProShares UltraShort Financials ETF, SKF, (SKF | Quote | Chart | News | PowerRating), also tracks the Dow Jones U.S. Financials Index. The SKF is also a leveraged fund, two-to-one. But the big difference is that the ProShares UltraShort Financials ETF is a short or inverse fund. As an inverse fund, this means SKF tracks the opposite of its underlying Index. So for every move down in the Dow Jones U.S, Financials Index, the ProShares UltraShort Financials ETF moves up.
The average daily trading volume in SKF is more than 7 million shares.
Inverse funds like the SKF excellent tools for traders who believe that a particular sector will move lower. ETF trading using inverse funds is also excellent ways to hedge portfolios against losses.
Lastly, financial ETFs - like all ETFs - help traders avoid single stock risk, one of the greatest sources of frustration for investors and traders alike over the past year. ETFs provide both transparency - knowing exactly what you are buying or selling - and diversification - helping spread risk over a variety of stocks.
For more information about the ProShares Ultra Financials ETF and the ProShares UltraShort Financials ETF, visit the ProShares website at http://www.proshares.com
Coming next: Have oil prices bottomed? Check out TradingMarkets Everything You Need to Know About Trading ETFs on Thursday as we take a look at two more ProShares Ultra ETFs: the ProShares Ultra Oil & Gas ETF, DIG, (DIG | Quote | Chart | News | PowerRating), and the ProShares UltraShore Oil & Gas ETF, DUG, (DUG | Quote | Chart | News | PowerRating).
According to a recent report, eight out of ten securities traded are exchange-traded funds. Want to learn how to trade them? Click here to find out what traders are saying about Larry Connors' new book, Short Term Trading Strategies That Work: A Quantified Guide to Trading Stocks and ETFs!
David Penn is Editor in Chief at TradingMarkets.com.
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