Page 1 of 1

Mechanics of ETF's

Posted: Tue Aug 10, 2010 1:48 pm
by Chris67
Investigating closer the ETF Market - nobody seems to have the contract specs ?? I.E is it the same as buying a share in that you simply buy based on the NAV ?
For example if I wanted to buy a Gold ETF - Howmany shares do you buy - if it moves up 1% how much have i made or lost ?? on 1 share ???


Posted: Tue Aug 10, 2010 3:31 pm
by LeviF
Arent they the same as stocks?

Posted: Wed Aug 11, 2010 9:02 am
by gunter
This is some interesting reading on commodity ETFs ... tment.aspx

Posted: Thu Aug 12, 2010 3:15 am
by Chris67
Extremely interesting - ETF's strike me as Hype and nothing else
If you want exposure to crude - Buy crude - its very easy to buy a mini or 2 pound/dollars per point spreadbettinmg and if investors cannot be bothered to look into what spreadbetting is or have a phobia about the credit worthiness of a spreadbetting company and some how think Goldman is a safer bet - then they fully deserve what they will get and what is coming

Posted: Thu Aug 12, 2010 6:13 am
by AFJ Garner
ETFs are far from hype. They are merely the exchange traded version of index tracking funds (although now of course weird and wonderful ETFs are being launched which veer far away from the original purpose/intent of index tracking).

Index tracking funds (in ETF form or otherwise) are a "very good thing" for the average investor who has for so many years been mis-sold and mis-informed about the "attractions" of actively managed stock picking funds.

Commodity ETFs serve a purpose for the unsophisticated or those who simply do not have the time or inclination to understand or implement a strategy using futures. I have made clear on many occasions my preference for exposure through futures but the futures markets are most definitely NOT suitable for Jo Public.

Anyone with a serious interest in ETFs must collect and read the relevant prospectus'. And inspect the performance and tracking error. No amount of second hand comment is a substitute for researching at the source.

Just as a historian (or at least an academic historian) must go to the source of history (original historical documentation) so must the financial market practitioner. There is no excuse for the analyst who relies on secondary sources.

Posted: Thu Aug 12, 2010 6:47 am
by Moto moto
There is also the issue of some groups are not allowed to trade futures and are restricted to trading something that is deemed to be more stock like.....

As an individual, trading an ETF does make sense if you wish to take a view on something that is replicated by someone else, whereby you dont have the time, skill, inclination to manage the futures rolls, or the replication of an index - eg; a building index.

Of course for this you have to pay a price.

Ask yourself - how different are ETFs from OTC swaps or the OTC FX market? (apart from the legalities).
AFJ Garner - perfect advice -"although now of course weird and wonderful ETFs are being launched which veer far away from the original purpose/intent of index tracking" - sort of like the original CDOs veering away from the original concept???????
Which came first - the demand for a product or the supply of that product to create a demand?

Posted: Thu Aug 12, 2010 9:49 am
by gunter
I have not used commodity ETFs to date, so I have no experience in their performance. I have however used index ETFs when I was saving up for my futures account in 2004-2006. I found that there was very little variance between the ALSI 40 Index and the SATRIX ETF. To me, that was a very useful exercise.

However, where the ETF gains its exposure via futures, it could be that the ETF puts up the price on itself every time it rolls the contracts. I have not tested this, but this information could also be useful with regards to the thread on the timing of rollovers - viewtopic.php?t=7569&highlight=roll.



Posted: Thu Aug 12, 2010 10:22 am
by Moto moto
Gunter you just reminded me of something I looked at a little while ago regards spread betting - or at least CFDs.....
You have to be sure to understand what it is, as initially it seemed as there was an arbitrage opportunity - however, these spreads can sometimes also adjust depending on what they are tracking..... cannot remeber the exact example but what we thought was free money quickly evaporated.