Trading ETFs for a living in 2021 | Start learning ETF trading

Lean how ETFs work

ETF trading is an exciting adventure that is growing in popularity. An individual may have heard about ETF trading through a news item or through a friend. In some cases, retirement programs are now including ETFs in their portfolio as a choice for retirees.

Learning ETF trading is not an easy task and is going to take some time. There is no quick way to get around the learning curve for trading ETFs for a living. It requires one to develop the skills and knowledge required in learning ETF trading that will help them to become successful traders.

In order for trading to be a success and provide an individual with optimum rewards, it is important that some first steps be taken on understanding how ETF works. With every type of ETF trading, method, and strategy, if you take a few simple steps in preparation before starting, you will be more successful.

Trading ETFs for a living
How to Trade ETFs for a living

The Exchange Traded Funds market is very detailed. By having a basic understanding of how ETF works and what to expect, an individual will be able to focus on those areas within ETF that are most relevant to their needs.

There is no doubt that ETF trading is becoming an interesting topic for many people and will pave the way for many traders to trade ETFs for a living.

This article gives you the introduction to ETF trading that may be helpful to a person who is just being introduced to ETF.

How beginners can start trading ETFs for a living?

Many successful traders agree that if a person can trade for the first year and have a 0% loss, they have had an excellent year. The learning curve on ETF trading is about 2 years.

Setting realistic goals is important before one starts trading. Many people do not fully understand how ETF works and how it is valued. These people, effectively, do not have a good idea of the actual return they can expect from ETF investments.

Traders, who are successfully trading ETFs for a living also indicate that there are about two good tradeable moves each year. Two to three high quality trade setup occur in any given month. When you start learning ETF trading, you have to keep in mind that the markets trend only about 20% of the time.

Patience is very important virtue to keep when one begins trading. When people hop in and out of trades arbitrarily without doing any proper homework needed to make a good trade, they lose money.

By learning ETF trading methods and strategies from individuals who are consistently successful, you will be able to shorten the learning curve of trading ETFs for a living.

Rules for learning ETF trading for full time income

The following homework will be important to successfully start Trading ETFs for a living.

  • Learning the language, structure, and details of ETF trading will prove very beneficial for a beginner.
  • Get the analytical tools that are necessary to get historical data organized on the sectors and companies that are being traded.
  • Learn how to spot trends and read patterns.
  • Collect and prepare resources needed to make good trades from several websites.
  • Learning ETF trading through courses, webinars and workshops will give you a great upstart
learning ETF trading
Note-making when learning to trade ETF

Treating learning ETF trading as learning any other skill is always a good idea. Generally a person does not start off doing something exceptionally well. He starts small and adds challenges as he master skills to understand how ETF works.

Starting small with ETF trading will give an individual the flexibility and time they need to learn the intricacies of trading ETFs for a living. For example, stay away from Leveraged and Inverse ETFs. They are complex and risky. Vertical Jumps in those can get detailed and complex.

However, starting small and learning ETF trading practically while working your way up to risky and complex ETFs will help you properly learn how ETFs work and will be a more viable way to reap rewards in the long term.

For a beginner to ETF trading, there are many websites offering training on how to trade ETFs for a living. There are several books with extensive knowledge on how ETF works, and on learning ETF trading, ETF trading strategies, and ETF trading methods.

You should thoroughly research a website to make sure that the company or individual offering the ETF training material is legitimate and has a history of creating ETF trading systems that work.

Types of ETFs

Deciding what types of ETF to trade will be a major decision depending on your comfort, your stake, your risk appetite and return expectations. In the following few paragraphs, I have listed several types of ETFs.

Index ETFs

Index ETFs are exchange traded funds that track a benchmark index like the S&P 500 as closely as possible to replicate its movement and return.

They incorporate a passive investment strategy. This means that the ETF fund manager changes asset allocation based on any changes in the underlying index, when intensity, amount, and number of changes actually occur in the underlying index.

These are one of the most diversified stable ETFs that can be used for the first steps of learning ETF trading for a living.

Leveraged ETFs

A leveraged ETF uses debt instruments and other financial derivatives to replicate the returns of an underlying index with a multiplier.For example, a Dow jones leveraged ETF give may provide returns equivalent to 2x (2-times) Dow jones returns.

A standard ETF typically doesn’t make use of financial derivatives but just buys the securities in its underlying index without any multiplier (1x).

A leveraged ETF is a very risk trading instrument and I will anyday suggest to avoid this for making a stable portfolio and to learn the first steps of trading ETFs for a living.

Inverse ETFs

An inverse exchange traded fund (ETF) uses debt instruments and other financial derivatives to mimic the inverse returns of an underlying index with a multiplication factor.

For example, for every 100 points fall in Dow jones index, the Dow jones 2x inverse ETF will give returns equivalent to a rise of 200 points in Dow jones.

Using Inverse ETFs, investors make money when the underlying index falls. An advantage is that they make such returns without having to really short sell.

Commodity ETFs

A commodity ETF invests in commodities, such as gold, copper, other agricultural goods, or natural resources such as Oil. A commodity ETF either physically holds the single or a group of underlying commodities or has investments in commodities futures contracts.

Investing in these kind of ETFs especially when learning ETF trading is very risky since commodities move up and down not just on demand and supply but also on several other geopolitical factors. So exclude these for your first trial steps in trading ETFs for a living.

Bond ETFs

Bond ETFs invest in fixed income securities such as Treasuries or corporate bonds. Investing directly in Treasury instruments requires huge capital investment and lots of regulatory documentation.

So a common retail investor cannot directly invest in Treasury bills or corporate bonds. As an example, you can see details of the following bond details by clicking the link below (opens in new window).

ANZ 3.350% 09MAY2023 bond –

With the help of Bond ETFs, retail investors are able to easily and cheaply diversify their investment portfolio using benchmark bond indices like corporate bond index or Treasury index.

If you want to trade ETFs for a full time income, you should avoid Bond ETFs unless you have huge investment capital because returns on Bond ETFs are miniscule compared to the capital they require.

The best ETFs to trade for a full time income or for learning ETF trading are non-leveraged, non-inverse Equity ETFs

Some historical statistics of ETFs

The ETF industry is gaining popularity at a very fast rate. Since more people and companies have learnt of the many benefits and advantages of etf investing, the industry has grown to almost ten times the size it was in 2008.

The flexibility offered to traders, and low trading charges of ETFs are just two of the benefits of ETF trading.

Usually when someone talks about the “history” of a company, business, or market, people automatically think it would be several decades. However, this is not the case with ETF. They recently started getting actively managed just about a decade back, precisely in 2008.

total ETF AUM – ETFs from 2003 to 2020

There were roughly 7602 ETFs in 2020 with a total Assets under management (AUM) of $7.74 trillion. Compare that to August 2009 when there were 858 ETFs holding $900 billion.

Part of the astounding growth of ETF trading has been due to, firstly, the increased number of exchanges now listing ETFs, and secondly, the increased number of ETF trading on world exchanges.

Why ETFs are the best?

Most ETFs are structured as open-ended management investment vehicles. This gives the ETF flexibility when constructing their portfolio.

ETFs can use futures and options to achieve investment objectives and participate in lending programs. The SEC really helped on this point by making ETFs open-ended management investment instruments which alleviated the need to get an exemption for portfolio construction.

A trader can start trading ETFs for a living by buying and selling ETFs throughout the trading day. This is completely different from the necessity of mutual fund trades to take place only at the end of the trading day.

The advantages to the trader being able to proactively trade ETFs through the day make a significant difference in the amount of gains they are able to see in their trading activity. This, coupled with the fact that changes occur in the market within seconds, makes the ability to trade in this way advantageous.

Tracking an index like the S&P500 or Dow Jones makes ETFs very easy to work with. A unique symbol is given to each ETF so that they can be easily identified. The ETF is very similar to CFD in this way. A CFD is also like a replica (or derived from) a stock index or a stock itself

If you want to invest at low cost for a short term, CFDs (contract for difference) offer really cheap 24-hour trading on same stock market index as tracked by an ETF.

CFD stock trading
CFD stock trading explained. Learn CFD trading meaning and CFD trading costs.…

ETF values are based on the weighted average or price of the combined stocks and bond of the companies within a basket or sector. This can confuse some people who expect larger gains because they have not included the calculation for all stocks and bonds in the underlying index or basket.

index tracking ETF sm
Index tracking ETFs

Brief note on ETF vs stock pros and cons

For trading purposes, ETFs act just like other stocks. A person can use a stop-loss order, limit order, bracketed buy order, etc.

Another advantage of ETFs is that a person can short sell at any time. Stocks generally cannot be sold short if the price of the stock is below its last price. With an ETF, a trader can short sell it when his position needs to be moved immediately.

Some of the ETFs are of minimal risk to a trader. Other ETF trades are of extremely high risk and require extensive knowledge about the movement of the market one is trading in. For a beginner, the most important rule of investing is preservation of capital. This helps them in learning ETFs trading and in trying to trade ETFs for a living.

Another difference is that ETFs are usually less expensive and are generally not actively-managed. Buying and selling of securities to accommodate shareholders does not take place with ETFs. Cost is certainly an important factor when a trader starts trading securities or ETFs for full time income.

Most ETFs don’t have 12b-1 fees (marketing or distribution fee). And, there are lower distribution, accounting, and marketing expenses.

ETFs are rapidly growing as part of a stable mixed portfolio for retirement planners. Large companies are finding that the steady growth and low risk offered by long term ETF trading makes it very attractive to many types of portfolio.

Many of these companies are buying ETF units in order to diversity their trading options.

Before you begin ETF trading it will be important to learn as much as possible about ETFs, their structure, and the intricacies of their working.

By talking to a professional having trading knowledge and experience, especially about trading ETFs for a living, you can easily begin the path of learning ETF trading.

You will also have an edge in having an understanding of all types of ETFs. You will also get ETF trading opportunities available to you to successfully start full time trading of ETFs.

Instead of doing all this by yourself, if you prefer an automated advisory solution like robo advisor that does this automatically for you, you can read the following article.

Robo Advisor pros and cons

Robo Advisor pros and cons. Can robo advisors make you rich?

What are the benefits of Robo Advisors

Advantages of robo advisors. Why robo advisors are bad? Learn Robo advisor Pros and cons. Are Robo advisors profitable? Learn why not to use a robo advisor?


Thank you for reading this article. I have written several other such Investment related articles.

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