Investing - ETF's

Exchange traded funds, or ETF’s are a group of securities that trade on exchanges like individual stocks, and are more commonly designed to track a chosen index. Similar to Mutual funds, ETF’s utilize a fund holding approach in the way they are created, in simple terms ETF’s have numerous smaller holdings, similar to being its own mixed portfolio. When trading ETF’s usually the investment is focused on a single sector, industry or category.

Trading ETF’s are a great way to diversify your portfolio, or if you are a more active trader who has experience trading on your own, can be of great benefit to profit from their daily price movements. Another benefit from trading this way, is because ETF’s are traded on exchanges in the same manner as stocks, you may also be able to take a ‘short’ position on them (subject to margin trading approval). Shorting ETF’s allows you to sell the investment without actually owning it, and be able to profit from the movement in price downwards.

A major difference in ETF trading and Mutual fund trading, is the ability to conduct intraday trading, Mutual funds, settle on one price at the end of a trading session, whereas ETF’s trade on the live markets during the day, so the price of an ETF can be potentially more volatile depending on the markets supply and demand levels.

Reasons to incorporate ETF’s into your portfolio:

  • Build a balanced and diverse portfolio
  • Access to index fund investing
  • Tax efficiency potential
  • Liquid investments, for ease of trading
  • Easily incorporate into current portfolios
  • Perfect for new, and experienced investors
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