What is a good ETF volume?
Volume and market impact
The higher the volume, the better. For example, if XYZ trades, on average, 10 million shares per day, it will be easier to trade than something that trades 100 shares per day.
Volume and market impact
The higher the volume, the better. For example, if XYZ trades, on average, 10 million shares per day, it will be easier to trade than something that trades 100 shares per day.
Holding too many ETFs in your portfolio introduces inefficiencies that in the long term will have a detrimental impact on the risk/reward profile of your portfolio. For most personal investors, an optimal number of ETFs to hold would be 5 to 10 across asset classes, geographies, and other characteristics.
Level of Assets: An ETF should have a minimum level of assets, with a common threshold being at least $10 million. An ETF with assets below this threshold is likely to have a limited degree of investor interest, which translates into poor liquidity and wide spreads.
Trading volume: ETFs with higher trading volumes may have greater liquidity, though not necessarily. More active trading can lead to narrower bid-ask spreads, reducing the cost of trading.
Description. The Average Volume is the total volume for a specified period divided by the number of bars in that same period.
Before purchasing an ETF there are five factors to take into account 1) performance of the ETF 2) the underlying index of the ETF 3) the ETF's structure 4) when and how to trade the ETF and 5) the total cost of the ETF.
A leveraged ETF uses derivative contracts to magnify the daily gains of an index or benchmark. These funds can offer high returns, but they also come with high risk and expenses. Funds that offer 3x leverage are particularly risky because they require higher leverage to achieve their returns.
Aim for around 10 to 20 diversified ETFs that align with your goals and risk tolerance. There is no fixed number of ETFs that can be classified as “too many” as it ultimately depends on an investor's individual goals, risk tolerance, and investment strategy.
- Trading fees.
- Operating expenses.
- Low trading volume.
- Tracking errors.
- The possibility of less diversification.
- Hidden risks.
- Lack of liquidity.
- Capital gains distributions.
What is the rule of 40 in ETF?
What is the Rule of 40? The Rule of 40 states that, at scale, the combined value of revenue growth rate and profit margin should exceed 40% for healthy SaaS companies. The Rule of 40 – popularized by Brad Feld – states that an SaaS company's revenue growth rate plus profit margin should be equal to or exceed 40%.
For most ETFs, selling after less than a year is taxed as a short-term capital gain. ETFs held for longer than a year are taxed as long-term gains. If you sell an ETF, and buy the same (or a substantially similar) ETF after less than 30 days, you may be subject to the wash sale rule.
Diversification: A well-diversified portfolio should include ETFs that cover different asset classes (stocks, bonds, commodities, etc.), sectors, industries, and geographical regions. This spreads risk and reduces the impact of any single investment on the overall performance.
ETFs make a great pick for many investors who are starting out as well as for those who simply don't want to do all the legwork required to own individual stocks. Though it's possible to find the big winners among individual stocks, you have strong odds of doing well consistently with ETFs.
Low Liquidity
If an ETF is thinly traded, there can be problems getting out of the investment, depending on the size of your position relative to the average trading volume. The biggest sign of an illiquid investment is large spreads between the bid and the ask.
The price of an ETF share generally stays very close to NAV but if the share price is below the NAV, then the ETF is said to be trading at a discount. Conversely, if the ETF share price is more expensive than NAV, the ETF is said to be trading at a premium.
With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].
| Symbol | Name | Avg Daily Share Volume (3mo) |
|---|---|---|
| SOXS | Direxion Daily Semiconductor Bear 3x Shares | 136,044,938 |
| SQQQ | ProShares UltraPro Short QQQ | 131,663,469 |
| SPY | SPDR S&P 500 ETF Trust | 75,227,273 |
| TQQQ | ProShares UltraPro QQQ | 73,430,531 |
- #1. iShares Broad USD Invm Grd Corp Bd ETF USIG.
- #2. iShares 5-10 Year invmt Grd Corp Bd ETF IGIB.
- #3. SPDR® Portfolio Corporate Bond ETF SPBO.
A lack of trading activity means the sale is made below the value it would have in a volatile market. Investors can choose to hold their ETFs for a return in action. Nonetheless, a decline in liquidity can mean a drop in value for both the short and long term, which makes investors more likely to sell.
Should I just put my money in ETF?
ETFs can be a great investment for long-term investors and those with shorter-term time horizons. They can be especially valuable to beginning investors. That's because they won't require the time, effort, and experience needed to research individual stocks.
Don't Trade Immediately at the Market Open
Generally speaking, the best time to trade ETFs is closer to the middle of the trading day rather than the beginning or end.
Nearly all leveraged ETFs come with a prominent warning in their prospectus: they are not designed for long-term holding. The combination of leverage, market volatility, and an unfavorable sequence of returns can lead to disastrous outcomes.
A diversified portfolio should ideally reduce the impact of volatility and put you in a position for higher returns over time. When your ETFs have too much overlap, this concentration can negate some of those benefits, potentially leading to higher volatility and reliance on too few companies.
You only need one S&P 500 ETF
You could be tempted to buy all three ETFs, but just one will do the trick. You won't get any additional diversification benefits (meaning the mix of various assets) because all three funds track the same 500 companies.
