Exchange Traded Funds (ETFs) are emerging as one of the most popular investing options for investors who want to grow their wealth with short-term and long-term possibilities. The funds provide a simple and diversified way to trade a commodity or index. ETFs have grown from comprising a few of broad-based index products to now comprising hundreds of products that represent nearly all achievable investment idea. While investors may prefer choosing certain EFTs, there is not a specific system in place to trade Exchange Traded Funds.
Let’s learn what ETFs are, what pros and cons they have and the way you can trade ETFs to make money.
What is ETFs?
As the name suggests, Exchange Traded Funds are tradable funds that can be traded like any other financial instrument on the floor of stock exchange. These funds track a commodity, stock, index or a basket of multiple assets. Take the SPDR S&P 500 ETF for example wherein an ETF tracks the SPY i.e. a S&P index. Since the ETFs are considered marketable securities, they have an associate price in order for them to be easily brought and sold.
There are a variety of ETFs that can be used to generate income, increase price, to speculate and to hedge offset risks in your portfolio. These may include bond ETFs, industry ETFs, commodity ETFs, Inverse ETFs, and Currency ETFs.
Pros of Investing in ETFs
- ETFs come with a simple method to trade. As a trader, you just need to buy shares or stock in the corresponding ETF. If there is a decline in the price, you have an option to exist your position by placing a sell order. Overall, keeping a close watch to market’s move and the respective forecasts can be handy to make money.
- ETFs allow you to increase or decrease your buying power according to your convenience and financial situation. Likewise, these funds provide you with the opportunity to place long or short trade with hedging strategies just like you do with stock trading. You can also diversify a number of assets and enjoy the relative stability of an index fund.
- Unlike options and futures trading, investing in ETFs does not need you to open an account. The options and futures usually have limited duration along with a likelihood of increasing price as soon as they reach expiration. This feature can be helpful for the investors to place their market call though they can lose most of their investment too. Some brokerage houses do not allow traders to use complicated investment strategies with options or futures unless you can demonstrate your knowledge and expertise required to clearly understand the associated risks. The ETFs, on the other hand, help you avoid risks that often result in losses and bankruptcy. They have usually lower expense ratio than other mutual funds because of the factors, such as lower marketing, distribution expenses, and so on.
ETFs make an easy way to generate good income though they have some disadvantages too, such as, leverage. The best way to play safely is to know the basics and work with a reliable trading platform, such as GigaFX. We advise you to educate yourself and utilize useful trading strategies that can benefit your portfolio and your pocketbook. This GigaFX review will help you learn more about the company.