ETFs can be used like financial instrument (such as options and futures) to take long or short positions in investment portfolios. With ETFs, you can scaled down the size of the transaction for small investors. The investment can be tailored with ETFs that invest in currency. Investors can hedge their portfolios against inflation by using commodity prices using targeted ETFs. Investors with limited experience in trading commodity futures can combind precious metals ETFs, oil ETFs and natural gas ETFs – or any commodity covered by an ETF. The advantage of combinding these type of ETFs is the low transaction and holding costs compared to the costs of futures, forwards, options, and other traditional hedging tools. Small investors have huge benefits using ETFs for hedging as they are able to invest in small number of ETFs shares compared to the prior requirement of larger minimum requirements required with traditional hedging strategies.
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