Trading and Investing in Bank Stocks and Financial ETF's

Bank stocks and Financial ETF's attract increasing amounts of traders due to the large daily price swings. In addition, some longer term investors see the recent large percentage declines as a buying opportunity and are bottom fishing. Bottom fishers though, often either come out with large winners or large losers so the risk is high.

As with any investment decision, make sure you understand as much as you can before entering into any positions. Bank Stocks and Financial ETF's are no different.

There are many concerns about regulations, solvency, nationalization, future writedowns, accurate reporting, deteriorating credit quality and many other things to consider.

If you are a short term trader, this sector may be the place to look because of the large percentage moves that frequently occur.

In addition to trading individual stocks, there are several ETF's that can be considered for trading and investing, some of which use leverage in the form of structured investment products to increase returns (profits and losses).

Here are a few Bank Stocks and related Financial Industry Stocks to take a look at for possible trading and investing ideas: (These were all active stocks at the time this article is being written: I figured I would add this statement in case some wind up being taken over or no longer trade at some point in the future, you never know.):

  • BAC Bank of America
  • C Citigroup
  • JPM J.P. Morgan Chase
  • WFC Wells Fargo
  • GS Goldman Sachs
  • MS Morgan Stanley
  • STI Suntrust
  • RF Regions Financial
  • UBS UBS
  • DB Deutsche Bank

These are not in any particular order and are no where near a complete list. The list is of stocks I have traded myself over the last few years and are frequently in the news. I listed Goldman Sachs, Morgan Stanley, UBS and Deutsche Bank as they provide Investment Banking Services to specific clients and often have an influence on other bank stocks movement.

In addition to individual Bank Stocks, you can also take a look at different financial related ETF's that are available for trading and investing such as:

  • XLF Financial Select Sector SPDR: "The investment includes companies from the following industries: banks, diversified financials, insurance and real estate."
  • KBE KBW Bank SPDR: "The investment seeks to replicate the performance of the KBW Bank index."
  • KRE KBW Regional Banking SPDR: "The investment seeks to replicate the total return performance, before expenses, of the KBW Regional Banking index."
  • IYF iShares Dow Jones U.S. Financial Sector: "The investment seeks investment results that tracks Dow Jones U.S. Financials Index."
  • UYG ProShares Ultra Financials: "The investment seeks daily investment results, before fees and expenses, which correspond to twice the daily performance of the Dow Jones U.S. Financials index. It may employ leveraged investment techniques in seeking its investment objective."
  • SKF ProShares UltraShort Financials" "The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Financials index. It may employ leveraged investment techniques in seeking its investment objective."
  • FAS Direxion 3X Financial BULL: "The investment seeks to replicate, net of expenses, 300% of the daily performance of the Russell 1000 Financial Services Index. It will also utilize financial instruments that, in combination, provide leveraged and unleveraged exposure to the index."
  • FAZ Direxion 3X Financial BEAR: "The investment seeks to replicate, net of expenses, 300% of the inverse daily performance of the Russell 1000 Financial Services Index. It will also utilize financial instruments that, in combination, provide leveraged and unleveraged exposure to the index."

When using leveraged ETF's (types of investment products listed above) you should research these products a little more before making any investment decisions. One thing that can occur with some of these is that they do NOT track their specific Index exactly in proportion over time.

Some of them have adjustments made to them and are re-calculated periodically. This means that if you are expecting a 3X move in proportion to an index over several months in a 3X ETF, it most likely will not happen. For short term trading, this may not be an issue, but for longer term trading and investing, make sure you do your research first and fully understand what you are buying.

Typically when I trade Bank Stocks, I will use an ETF that provides leverage, such as UYG, SKF, FAS or FAZ. Before and during the trade, I will have open several realated charts such as individual stock charts of Bank of America, Citigroup, Goldman Sachs and the XLF ETF. This helps me to see how each is acting, or reacting in comparison with each other.




Return From "Financial and Bank Stocks" To "Stock Sectors"


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