What are ETFs
and how to invest in them
The ETF trading is one of the profitable and easy ways of investments. In this article we will explain in detail what an ETF is, how it differs from stocks, and what makes it attractive to traders. You will find out how to increase your income using ETFs and maximize profits on the stock exchange.
What are ETFs
and how to invest in them
Exchange Traded Fund (ETF) is one of the financial instruments that are formed from the stocks of two or more companies and the capital of different investors.
What is an ETF comprised of? The companies united in any ETF accumulate a certain amount of money and invest it in various assets, such as precious metals, stocks, currencies, indices. In this way, they collect an investment portfolio, which is managed by this exchange traded fund.
There are more than 7 thousand ETFs on the world stock exchange. About 80 ETFs trade on the Moscow stock exchange. In order to start to trade assets, an investor needs to purchase a unit of such fund or its stocks. After that, this investor becomes a co-owner of such exchange traded fund.
Specific features of ETFs
and why they are attractive to tradersIt is generally believed that the easiest and most reliable way to trade on the stock exchange is to invest in stocks. However, it is not easy for a beginner to get into the stock market.
And here is why. Let's take Apple, for example. The cost of one stock of this brand is 125 USD. And the cost of one stock of Berkshire Hathaway, the fund run by the famous American entrepreneur Warren Buffett, is 290 USD.
Obviously, in order to collect an impressive investment portfolio, a trader has to spend a lot of money to buy stocks of top companies. That's why the using of ETFs is an effective way to earn money with minimal investment. They can help you to trade on the stock exchange and to get a high income at minimum expenses.
Example. Sberbank, LUKOIL and Gazprom are parts of one exchange traded fund, namely FinEx Rus Eurobonds ETF. The cost of one stock on the Moscow Stock Exchange is only 10 USD. At the same time, the result from investing in this ETF is the same as from the regular trading on the exchange. With ETF instrument you can choose any option: whether you have the long-term expectation or your intention is the constant active trading.
Similarities and differences between UIFs and ETFs
UIFs and ETFsEssentially, an ETF is similar to a portfolio of stocks. The assets included in the fund are often analogous to or are oriented to the stock index. Most of the popular stock indices have copies in ETFs. For example, the U.S. NASDAQ Index — PowerShares QQQ.
The structure of exchange traded funds resembles open-ended unit investment funds (UIFs). This is also a form of collective investment, but the difference is that the investor's share in the fund's property is equal to an amount of the unit purchased by the investor.
The similarities between ETFs and UIFs are as follows:
- a high liquidity ratio
- possibility to apply the diversification of investments
- possibility to enter the stock market with minimal investment
The differences between ETFs and UIFs are as follows:
- unlike UIFs, ETFs allow the investor to make transactions directly
- it is easier to withdraw profits from ETFs
- in ETFs, a trader does not need to pay a high contribution to the management company
- in ETFs, the asset price is indicated together with a commission
The specific feature of UIF trading is that a special company completely manages the trader's capital. In contrast, by investing in ETFs, you can be free in your actions, however it is important to have vigilance and concernment. All you need is just to choose an effective instrument for trading in the stock market.
How to get profits
with ETFsFor the energy sector, a prime example of an ETF is GUSH Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares, consisting of stocks of the gas and oil companies. The asset name is S&P Oil & Gas Exploration & Production Select Industry Index. The attractiveness of this fund lies in the fact that the value of its index on the stock exchange is 4,000 USD, while the price of the ETF itself is only 98 USD.
In 2018-2019, there was a decrease in the value of this instrument, however, since the beginning of 2020, its price is actively growing. And over the last 6 months, the fund value has been tripled!
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) is also very attractive for traders. It consists of the assets of well-known and profitable brands from various industries. This ETF includes some manufacturers of household goods and real estate enterprises.
At the beginning of 2021, the value of NAIL was rapidly doubled, and then slightly reduced its positions. At the current time, its stocks can be bought at the minimum price, and later you can start trading and get a significant profit!
How to start to make profit from ETFs right now
UMarkets has dozens of attractive ETFs for any beginning trader. You will have a personal expert at your disposal, who will help you to select the most effective instrument for maximized profits! To do this, just register on the UMarkets website, choose your personal expert and start to create your successful path in trading on a stock exchange! With UMarkets you can make maximum profit from ETFs!
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