Tradingmarkets eveything you need to know about trading etfs sso,sds

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Tradingmarkets eveything you need to know about trading etfs sso,sdsTradingMarkets Eveything You Need to Know About Trading ETFs: SSO, SDS

We recently took a look at the most widely traded ETF on the market, the SPDR S&P 500 Index ETF, SPY

PowerRating ). which tracks the stocks of the S&P 500. We also profiled a short or inverse exchange-traded fund based on the S&P 500, the ProShares Short S&P 500 ETF, SH

PowerRating ) and the ProShares UltraShort S&P 500 ETF, SDS

PowerRating ). Both of these exchange-traded funds only add to the flexibility and opportunity available in ETF trading over the past few years.

The ProShares Ultra S&P 500 ETF, SSO, is leveraged two-to-one, meaning that it is structured to provide ETF traders and investors with twice the return of the S&P 500 Index. As with the SPY, the SSO will reflect whatever sector bias the S&P 500 Index may have at any time.

As a leveraged ETF, the SSO is a way for ETF traders to gain exposure to the S&P 500 Index, with less capital. Traders looking to take speculative positions at market turns, for example, often turn to leveraged ETFs such as the SSO as their preferred trading vehicles (see our Big Saturday Interview with trader and author of The Big Picture blog, Barry Ritholtz, who discusses trading ETFs in similar ways ).

Also leveraged is the ProShares UltraShort S&P 500 ETF, SDS. The SDS, as an ultrashort fund, is not only leveraged 2-to-1, but also tracks the inverse of the S&P 500 Index. As such, the SDS is built to move twice as far up as the S&P 500 Index moves down.

Inverse leveraged funds are not only great tools for speculators who would rather buy an ETF than sell one short. Inverse leveraged ETFs are also appropriate for those traders and investors looking to hedge long stock or long ETF portfolios. The 2-to-1 leverage with inverse leveraged ETFs such as SDS means that hedging requires less capital than would a hedging strategy based on selling short. And compared to hedging with options, traders of inverse leveraged ETFs never have to worry about their hedges expiring.

For more information about the ProShares Ultra S&P 500 ETF, SSO, and the ProShares UltraShort S&P 500 ETF, SDS, visit proshares.

It is worth pointing out that leverage cuts both ways, and traders and investors who use leveraged ETFs a€ inverse or regular a€ should be wary of how much capital they commit to these funds. This is all the more important in these times of great volatility.

That said, the arrival of leveraged and inverse leveraged ETFs has been a boon for the vast majority of ETF traders and investors who now have more options than ever when it comes to taking advantage of trends, breakouts and pullbacks in whatever markets they appear.

Coming Next: The S&P 500 has been the home of the financials for many years. Now ita€™s time to travel to the land where technology stocks have ruled. On Monday, wea€™ll look at how ETF traders and investors can take advantage of moves in the Nasdaq, starting with regular and short ETFs, then later in the week reviewing some of the Nasdaq ETFs that pack a real punch!

So be sure to stop by Monday afternoon as TradingMarkets Everything You Need to Know about Trading ETFs returns with another pair of ETF you need to know.

David Penn is Editor in Chief at TradingMarkets.