What are the ETFs?
Get access to an entire market sector by trading CFDs of ETFs (exchange-traded funds).
What are the traditional exchange-traded funds?
The ETF is a fund that you can trade pretty much like a share or another asset. It is like trading a bouquet of financial instruments diminishing the eventual fees you would have paid if you bought the assets one by one.
How does the ETF work? The fund is designed to track the performance of the underlying assets, and then it is sold to investors. Each shareholder owns a fragment of an ETF but not the underlying assets.
What types of ETFs are there?
An ETF could be used for generating incomes, for hedging, or for offsetting risks in a portfolio. Also, you can use it to speculate on the prices. Here are the different types of ETFs:
• The bond ETFs gather various bonds: corporate, government, state, and local bonds.
• The industry ETFs track certain sectors energy, technology, banking, and more.
• The commodity ETFs involve crude oil, grain, platinum, or gold.
• The currency ETFs deal with foreign currencies.
Traditional ETFs – advantages and disadvantages
The advantages of the ETFs include three components – transparency, diversification, and some tax benefits.
Anyone with an internet connection can access the holdings of a certain fund and monitor their price activity.
One way is to diversify the market vertically, from shares to commodities. A different approach suggests horizontal diversification – between different industries. It is easier to invest using these approaches rather than buying all the assets individually.
Investors usually pay taxes when they invest. However, when trading in mutual funds, the taxes incur during the investment period itself.
When an investor wants to sell the ETF, most of the times, he will have to deal with low liquidity. ETFs are not traded so often, which makes the selling process a little harder.
As ETFs are exchange-traded, they are subjected to certain fees from the online brokers. Many brokers have decided to remove their commissions, but some still have commissions for ETF trading.
If the fund itself doesn’t bring enough assets and the administrative costs are too high, investors might have to sell sooner than planned. And they would sell at a loss in most of these cases because in CFD and ETF trading, you do not own the underlying assets.
What are the risks of investing in CFDs of ETFs?
Please be advised that trading CFDs of ETFs can be extremely risky because of such instruments complex and speculative nature. That is why every client who is trading such CFDs is at risk of losing part or even all of the invested capital in a short period of time due to high volatility and high leverage. That is why such investment instruments are not suited for all investors.
They consist in the difference between the returns of the ETF and its reference asset. This type of error is calculated based on the prevailing price of the ETF and its underlying assets.