An exchange-traded fund, or stock market, is a pooled collection of investors’ claims on specific companies; these can include securities listed on the Major Exchange, or exchanges, including the New York Stock Exchange and the NASDAQ. Within the scope of this article, however, we will only be discussing exchange-traded funds. Exchange-traded funds are offered by hedge funds and mutual funds, as well as other individual institutional investors. When these funds are created, they typically use one or more investments to create a portfolio, each of which is assigned to a particular investment strategy; for instance, one fund might focus on technology, another on energy, and another on a fixed income. This way, each of these individual investors’ positions on different companies within their portfolio yields a return.
Some of the things that investors track inside of an exchange-traded fund include index funds and stock indices. The advantage of using index funds is that they are less influenced by individual stocks and portfolios; what’s more is that these types of index funds are often more stable. Investors that focus on individual stocks are often looking for quick gains and don’t have a comprehensive diversified portfolio; meanwhile, those who buy into a comprehensive portfolio but are not interested in quick gains also don’t have to worry about the potential volatility of one or two particular investments within their portfolio. One disadvantage is that index funds don’t provide a strong return on your initial capital. They are designed only to track a number of generic index rates, not specifically tailored to your own financial goals.
Another option for stock investing is day trading or swing trading. Day trading is a style of investing that exploits short-term price fluctuations to make a lot of money in a short amount of time. Swing trading, on the other hand, is more geared towards long-term investments. It utilizes a technique called trend trading, in which you purchase stocks that have already reached certain highs or lows; you then use technical analysis to predict that the prices will continue to rise or fall and then purchase them when the prices are already high, allowing you to reap in all of the profits.