Know your products

The double-short China fund (FXP) came out on 11/8/2007. The FXI topped out on 10/31/2007. Pretty good timing. I bought FXP when it first open around 75 and sold later in the day for a nice profit. Later in '07 on I was still bearish on China and bought some more to hold. My timing sucked and I closed the trade with a close.

In retrospect that's a good thing since it's at 36 now.

There's been an explosion of popularity in ETFs but it seems most people don't know what they are trading. Ever since my trade in FXP I've also done a lot more work on figuring out what is in an ETF and reading the prospectus.

This especially matters in more complicated ETFs like those that have leverage or are based off of futures. Great post at AlphaTrends on why people should be buying USL and not USO.

I was also doing some research on ETNs. One big difference between ETNs and ETFs is that ETNs have credit risk. So in effect they are like an ETF with a short put option on the provider. You won't get much upside for taking the credit risk, but you run the risk that they provider goes bankrupt. It reminds me of some of the "hell bonds" in "Traders, Guns, and Money".