Good Afternoon, I was just doing some reading on ETFs , and a few things regarding them I wanted to double check on and make sure I understand them correctly 1. on a lot of the Long, Short, 2x and 3x ETFs ........ they had ETN at the end of them What is ETN exactly ? 2. Some Commodities, have multiple ...... 2x , 3x , Long, Short, and Inverse ETFs to choose from to trade them ( such as Crude Oil, Natural Gas, Gold, Silver, Bonds, Currencies ) How do you decide which say ....... 2x ETF to trade on Gold ? Just choose the one that has the most ( Total Assets and highest Average Volume ) ? 3. What are the ETFs for the Bonds/Notes ...... mainly the 30 year, 10 year, 5 year and 2 year ? So if I wanted to mimic as closely as possible the 2 year on the Futures market, which ETF would I need to look at to trade ? 4. Are there any ETFs to mimic both Feeder Cattle and Live Cattle ? 5. What about any ETFs for ..... Heating Oil , Oats, Orange Juice ? Thanks again for the help , much appreciated
when it comes to etfs and etns your primary difference is what the underlying value of it is "whats under the hood" per say. An ETF (Exchange traded fund) you are buying into companies or a pool of investments made into whatever sector the ETF specifies (for example a crude oil ETF could be bought into Exxon, Marathon, or any Oil Company and some of them run futures or invest in Oil Tanker companies like DHT the list goes on and on ), its similar to buying shares of a mutual fund but different at the same time as it can be traded like stock, its going to track and index but not move for move. An ETN is an Exchange Traded Note, its trades like a bond, its not asset backed, but its backed by whoever issues the ETN (Investments Banks for the fair share of them) they primarily track an index move for move. For example, UWTI is a 3X Leveraged Crude Oil Daily Return. The ratios as to what 1 dollar going up on crude oil as to how it effects the UWTI is set on an algorithm reset daily so that is hard to truly determine. Same with the majority of any leveraged ETN/ETF the 2x 3x factor is more of a volatility rating than it is the actual return based upon the index its tracking, it certainly always falls in line, but youd have to constantly be doing math on the stock to determine how far the ETN/ETF would move after the index has already moved (ETN's move over night even outside of late trading hours so be careful with those) and when it comes to finding whatever ETF/ETN for any specific commodity or sector your just gonna have to pound google or just flat out call your brokerage. Took my 2 hours to find one for wheat and I called Etrade until I could finally find one (WEAT in case your wondering) Hope this helps.
joarbana , Thank you so much for that thorough and detailed reply I really appreciate that Have helped me a lot
When you think about trading leveraged ETF's or ETN's remember there is this drag that impacts its tracking error. They effectively buy options each day to adjust the leveraged vehicle. So when you buy these instruments you are paying for short dated option premium and management fees thus the so called drag. Where things confuse people more are ETF's like JNUG on gold miners. We think of our risk for these being zero but that is not correct. There is no limit to our risk to the downside as they will keep doing reverse stock splits so if it goes to $1 dollar they can do a 10 for 1 reverse stock split and JNUG now trades at $10 instead of $1. The call option premiums seem too high when you look further out and people want to sell the call premium and collect easy money. That works till it doesnt as JNUG went from $2 dollars to $33 dollars over 6 months and now it's back to $7 after both reverse stock splits and normal stock splits...Over 2 years the ETF - JNUG has been a high of 215 in 2014 and low of 2 on Jan 2016 with a downward sloping line over time which is a big chunk of option premium and management fees...
Stymie, Thank you as well for your reply I wasn't aware os this implication with trading the Leveraged ( 2x and 3x ) ETFsETNs