Are single stock ETFs a good idea?

Are single stock ETFs a good idea?

They’ve only been on Wall Street since July, but there’s a debate going on about individually traded funds on the stock exchange.

The product offers traders inverse positions on individual securities, despite the concerns of SEC Commissioner Caroline Crenshaw.

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“While I have expressed concern about leveraged and inverse ETFs in the past, I am concerned that these single-stock ETFs present another, perhaps greater, risk to investors and the markets” due to the increase in stock exposure and the daily rebalancing,” she said in her July 11, SEC statement.

“In other words, returns for investors over a longer period of time could be significantly lower than expected based on the performance of the underlying stock,” she said.


Daily rebalancing of individual stock ETFs and compounding effects may cause significantly different results from the performance of the underlying stock. SEC Commissioner Caroline Crenshaw ((Photo by SAUL LOEB/AFP via Getty Images) / Getty Images)

As inflationary pressures push the US Federal Reserve into another year of interest rate hikes and the major Wall Street benchmarks struggle to reverse their bearish positions, single stock ETFs can provide day traders with complex exposure to one stock rather than your diversified portfolio.

Ticker Security last Change Change %
SP 500 S&P 500 3915.73 -13.13 -0.33%
me: DJI DOW JONES MEMORANDUM 33163. 72 -133.24 -0.40%
I: COMP NASDAQ COMPOSITE INDEX 10906. 99574 -50.02 -0.46%

Single stock ETFs: A gamble for day traders

In an interview with FOX Business, John Duffy, CEO of Trending Stocks, said that despite unique views on individual shares, “Individual stock ETFs are more of a gambling method for speculators.”

New York Stock Exchange

Individual stock ETFs will add more leverage to the system – increasing risk in our financial system and can filter the real economy in their ability to destabilize markets.” George Mason University Finance Professor Derek Horstmeyer. (AP Photo/Mark Lennihan / AP Images)

“The good news is that you’re in and out, so long-term losses don’t come into play, and you’ll have your money, loss or gain, within 24 hours,” he said. “Also, with a single stock ETF for a company like Apple, you can only participate in a fraction of the cost of the stock, reducing overall spending and investment.”


“The history of the market is filled with innovators looking for an edge or a way to attract the gambler and the speculator, and the single stock ETF exists to attract the speculator,” he concluded.

How do single stock ETFs work?

Dave Mazza, Direxion managing director and head of product, told FOX Business that individual stock ETFs amplify tactical views of individual stocks with 1.5X daily leverage and 1X inverse exposure, while offering bullish and bearish positions on five some of the largest and most liquid individual stocks in the world. .

“Single-stock ETFs can be used to address the various needs of traders looking for a long or short position in a particular stock, and inverse single-stock ETFs can be used to signal a bearish view of stocks,” said he. “In other words, traders can go long to go short.”


However, “leveraged ETFs seek daily investment returns and should be considered primarily for short-term trading purposes,” he cautioned.

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