1. Risk ManagementPortfolios that have exposure to certain market sectors can purchase or short sell an ETF in that particular sector to hedge against risk. Investors can counter risk by taking the opposite position with the correlating ETF.
2. International Exposure
Investors can gain exposure to international markets that show potential growth with the purchase of a foreign ETF that follows the index for a particular country. Or in some cases international exposure can be gained by including foreign currency ETFs in a portfolio. Here are some articles to help you with your foreign ETF investing strategy/
3. Industry Exposure
For certain industries that show potential growth (or even a decline), an investor can purchase Industry ETFs that follow the indexes for those particular market sectors. This allows an investor exposure to an indistry as a whole without having to corner the market on all the related stocks of a sector, or at least the major players.
4. Cash Flow UtilizationDuring periods of excess cash flow, extra monies can be put to use by purchasing a short-term ETF, so there is always an opportunity for earning a potential return. During periods of cash flow deficit, ETFs can be easily liquefied with one single trade.
5. Price Discrepancy
Due to volatile market conditions, such as currency and interest rates, there may be price differences among an index and its derivative contracts (futures and options). If calculated correctly, the buy or sell of an ETF can take advantage of the arbitrage opportunity, but it still is a difficult strategy to utilize.
6. Management TransitionsThe accountability of a portfolio will change hands when fund and portfolio managers change positions or leave financial firms. The purchase or sale of a short-term ETF can help bridge that transition period in order to compensate for any risk exposure.
7. Market Analysis
After conducting a thorough analysis, an investor can utilize various ETF trading strategies to take advantage of certain forecasts. For example, if an analyst has confidence in the overall market, but is bearish on a particular sector, a combination of ETFs can help take advantage of this information. One can purchase an ETF that tracks the broad market while selling an ETF in the particular sector that will under perform.
With the ETF market growing rapidly, the trading strategies at your disposal are only limited by your own ingenuity, There are even some great ways to use ETFs as part of your earnings season investment strategy. If they aren't already, ETFs should be a part of your portfolio. It may be time to get started with ETFs.