So What Type of ETF Investor Are You?

With so many new products flooding into the exchange-traded fund universe, it can be difficult to select the ETFs that best suit your investment goals.

That's why it's important to determine what type of ETF investor you are.

By locating yourself within one of the three broad categories below you'll be able to better select funds that match your investment strategy.

The Professional Trader

The type of trader uses ETFs on a daily basis to manage exposure, hedge positions and augment existing holdings. Because the professional trader is well versed in some of the more complex financial instruments, such as derivatives and swaps, this active trader has a broad range of ETFs at his or her disposal.

Professional traders will often use leveraged ETFs, like the Direxion Daily Financial Bull(FAS) and Direxion Daily Financial Bear(FAZ), to manage existing exposure on a daily basis. They will not will not hold on to funds like FAS or FAZ over an extended period and, more often than not, will trade in and out of leveraged funds within a single session.

Complex futures and swaps-tracking commodity funds, like United States Natural Gas(UNG), may also be appropriate for the professional trader who understands the methodology and risks. Professional traders may be able to exploit the inefficiencies in these funds to gain attractive returns.

Most important to the professional trader are liquidity and timing. These traders have to quickly get in and out of positions and often hedge or sell positions at the end of each trading day.