Trading 101: Stocks vs. ETFs – What’s The Difference?

Stocks vs ETFs

Stocks vs ETFs (exchange-traded funds), what’s the difference? Which one should you trade and which has a larger profit potential? That’s what we’re going to talk about right now.

3 things you need to master to succeed with trading

  1. The first is what to trade. And there’s a lot of things that you can trade: stocks, options, ETFs, Forex, cryptocurrencies, futures, right?
  • When to enter.
  • When to exit. And there’s two ways to exit either with a profit or with a loss.

As we talk right now about stocks versus ETFs, we cover the first part, what should you trade.

When trading stocks there’s pros and cons to trading stocks, right?

One of the things that happens with stocks that regularly, there is news that is moving the stock. News can make a stock violently move to the upside or the downside.

This is why there are some ETFs.

Stocks vs ETFs: What’s the difference?

What are ETFs?

ETF stands for exchange traded funds and it basically means, it’s a fund of stocks that is traded like a stock.

These days there are many ETFs and each ETF has a purpose. The idea here is when investing in an ETF that you are diversifying.

Let me give you an example.

Let’s say that you want to invest in the S&P 500 and instead of buying 500 stocks, you just buy an ETF that is called SPY.

So let me tell you exactly what this looks like. I’m looking at a chart of the SPY and this is an ETF that is mirroring what the S&P 500 does. It’s just way cheaper to trade.

Right now, at the end of April it’s trading just shy of $300. So if you’d like to benefit when the whole S&P is going up, you can trade the ETF that’s called a SPY.

Pros and Cons of ETFs

stocks vs etfs

The cool thing is it trades like a stock. Therefore, it’s really easy to get in and out, and also fairly cheap compared to mutual funds that have tremendous management fees.

An ETF usually has much less management fees and therefore could be an alternative to mutual funds.

One of the things with ETFs is they don’t have earnings and they do not provide any dividends.

Also, the con of ETFs is that it moves much slower.

Example

Today the spider, which is the ETF that is mirroring the S&P 500, moved up .13 percent.

Now, compare this to some individual stocks that I like to trade, for example, OLN that today moved to 1.3%, 10 times as much, or VSTO that moved to 1.7%, 15 times as much as the index.

This is why I personally prefer to trade stocks over options.

If you’d like to know how I pick the stocks that I personally use in my trading, please go to a website that I set up for you it’s called www.mytradingroutine.com

There I explain exactly how I find the best stocks to trade.

Let’s talk about a few key ETFs

Here are some ETFs that you might want to know because you might choose to invest in ETFs.

SPY

One of them, we already talked about it, is the SPY the, so-called, spider. And it’s mirroring what the S&P 500 does.

DIA

If you want to invest in an ETF that is mirroring what the Dow Jones does there is the so-called diamonds. The symbol is DIA. And you see right now it is trading at around $265.

If you would buy all the stocks in the Dow Jones it would be $26,000, right? But here, obviously, this is much cheaper. It behaves exactly as the Dow Jones.

QQQ

If you like to trade the Nasdaq there’s an ETF for that, that is mirroring the Nasdaq which is called the QQQ.

No idea why they’re calling it, but, hey, you just need to know it’s called the Qs and the symbol is QQQ.

USO

Also, if you would like to trade crude oil but you don’t like to trade the futures market, you can trade an ETF which is called USO. USO is tracking what crude oil is doing.

So, if you are betting that crude oil will rise, you can just buy an ETF that is called USO.

And if you believe that crude oil will go down that prices will decrease, then you can simply sell this stock or this ETF that’s traded like a stock and it’s called USO.

FXE

Now, one more that I want to tell you about is FXE. FXE is mirroring the euro currency.

If you’re interested in currency trading and you don’t want to trade Forex you can do it with an ETF.

Now, there are many ETFs out there and whatever you want to trade, whether you want to participate in gold or silver you can do this with an ETF and it’s as easily traded as a stock.

Now, one more thing that I want to cover here is so-called leveraged ETFs.

Leveraged ETFs – What does this mean?

We talked about the SPX that is mirroring the S&P. So, as an example today the S&P was up .11 percent.

Now, you can trade an ETF that is leveraged with a factor too, the symbol for this is then SSO and today it went up to 5%, exactly twice as much.

So you’re getting some leverage here, and for every point that the S&P goes up, this particular leveraged one called SSO goes up 2 points.

There’s even one that’s leveraged with a factor of three and it’s called UPRO, the ultra pro shares.

Today the SPX was only going up .1% and the UPRO was going up .35%. As you can see, they’re leveraged ETFs and leverage is a double-edged sword.

It works in your favor, as well as against it. If the S&P goes down by a point this particular fund here UPRO would go down three times as fast.

You can bet on a falling market

Very last thing that I want to mention here, you can also bet on a falling market. If it’s screwing with your head and you say, “Well, I would have to go short,” they got you covered.

For example, there is an ETF that is mirroring the S&P right now.

Today the S&P went up .11 and this went down .11. So, it’s basically betting on a falling market as the S&P goes down this ETF will go up.

You can make it as easy or as complicated as you want it to be.

I personally do not trade any of the ETFs and here’s why.

For me, the main disadvantage is that these ETFs are rather slow.

 Even if you have here a leveraged ETF as you have seen today the stocks that I’m trading has been moving 1.3% and 1.7% in a day.

The ETFs, even the leveraged ones, only move 0.33%, therefore, I personally like to trade stocks.

It’s important that you know the difference between stocks vs ETFs and I hope that now you know this so that you can make an informed decision of what you want to trade.

Keep in mind that stocks have earnings and dividends.

ETFs typically do not have any earnings and do not have any dividends ETF are more diversified. And whenever something is diversified it means that it moves much slower.

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