Trading Energy Exchange Traded Funds
Energy prices are once again in the news. This may draw some investors into this market. The question is always how and where to put your investment dollars. Do you try to find individual stocks or would you prefer to invest in a basket of stocks in a given sector? Let’s look at investing in a Natural Gas ETF.
If you are looking at the energy sector, there are many stocks to choose from. You can look at large cap stocks like Exxon, or search for smaller oil companies. Do you want to invest in producers of oil or in companies that refine and market it? You might drive yourself crazy trying to find individual stocks like that, but it could be a lot easier selecting the right nat gas ETF.
When you invest in an ETF, it will save you time in following the market and in record keeping. With each stock you will need to watch your stop loss orders and your price objective. Also if you have stocks that pay a dividend, then you will have to record that too.
Investing in individual stocks also will increase your volatility. Imagine if you just owned BP recently. You just say a big drop in share price, but if it were part of an ETF, you wouldn’t have lost as much money.
Like individual stocks, and energy ETF can also be margined. When you margin ETF, you are now leveraging your investment with borrowed money and thereby increasing your risk. Remember, you will have to factor in the cost of borrowing money on margin into your investment return.
Do you want to short the market? If you want to short natural gas stocks, you would have to go to your brokerage firm and try to borrow shares to short. In addition, you will have to pay interest costs when borrowing the shares. With the ETF, there are several natural gas ETF short funds to which to choose from. This is a much easier way to short stocks.
If you are looking at natural gas, take a look at natural gas ETFs
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