Using ETFs to Hedge

This is a discussion on Using ETFs to Hedge within the Indices forums, part of the Markets category; I am looking at "hedge" trading where I buy an index ETF (i.e., of the S&P), and then also buy ...

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Old Sep 26, 2011, 2:07pm   #1
 
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Using ETFs to Hedge

I am looking at "hedge" trading where I buy an index ETF (i.e., of the S&P), and then also buy its 'counterpart', meaning an ETF which is shorting that index. I don't know if I would buy them at the same time, and just sell whichever one makes profits that day, etc., Or buy each one separately, depending on whether or not a particular index "should" make money that day, based on the futures pre-trading, etc. I have done some of the latter, which has worked out.
However, don't want to have to reinvent the wheel. Has anyone had any experience doing this?
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Old Sep 26, 2011, 2:13pm   #2
 
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Re: Using ETFs to Hedge

So you want to pay charges to maintain a net flat/nil exposure position? Why not just post money to your broker instead and get on with the rest of your day?
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Old Sep 26, 2011, 2:32pm   #3
 
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Re: Using ETFs to Hedge

Hendl started this thread You don't understand. If Day 1 the Nasdaq goes up, then sometime that day, I sell. If a few days later it goes down, then that day I sell the ETF I've already bought that goes short on the Nasdaq, and pocket those profits. I don't sell each ETF every day.
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Old Sep 26, 2011, 2:42pm   #4
 
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Re: Using ETFs to Hedge

you will lose a lot of money when you think you are flat, just because you can't take a loss

a short etf is NOT the precise inverse of a long etf
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Old Sep 26, 2011, 2:42pm   #5
 
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Re: Using ETFs to Hedge

So then why don't you just close out your initial pisition? You're doubling your commissions.
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Old Sep 26, 2011, 4:57pm   #6
 
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Re: Using ETFs to Hedge

Quote:
Originally Posted by arabianights View Post
you will lose a lot of money when you think you are flat, just because you can't take a loss

a short etf is NOT the precise inverse of a long etf
Unless you work for UBS and your name is Kweku.
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Old Sep 26, 2011, 5:11pm   #7
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Re: Using ETFs to Hedge

Quote:
Originally Posted by Hendl View Post
You don't understand. If Day 1 the Nasdaq goes up, then sometime that day, I sell. If a few days later it goes down, then that day I sell the ETF I've already bought that goes short on the Nasdaq, and pocket those profits. I don't sell each ETF every day.
Sounds great if you can do it.

But chances are you're setting yourself to be topped and tailed so you'll find yourself selling (on fear probably) on the lows and then buying (again on fear) on the highs.

The only way to find out is to try, but do it in just 10 shares for the first several months otherwise there's a 99% chance you're doomed. Practice makes perfect in this game and it's one of the reasons why do few make it, they don't put in the practice or trade too large to start with so have nothing left to practice with.
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