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An exchange traded fund (ETF) – is an  investment fund traded on stock exchanges where assets can act as independent objects of investment.

Exchange Traded Fund are a type of mutual fund. An ETF holds assets such as stocks, but there are also exchange traded shares, bonds and other financial instruments. At the same time the share price is formed not on the basis of the total value of the fund’s portfolio, as in  case of mutual funds, but by the market – in course of trading.

 

ETFs are a good option for: 

  • small investors, willing to take risks associated with margin trading
  • people who are familiar with the principles of independent trade instruments of the financial markets; those who are ready to devote time and manage their investments in Exchange Traded Funds
  • those who give priority to the high liquidity investments and the ability to return the invested funds at any time

 

Advantages of ETF Investing

  1. The Fund’s assets are managed by qualified professionals who provide not only the growth of the ETF property value, but also the highest rates of its shares on the stock exchange.
  1. ETF Shares are extremely liquid – asset value changes in course of trading and it is possible to purchase or sell it at any time during the trading day. Thus, the investor can choose the most suitable investment time horizon.
  1. A share traded on the Exchange Fund can be purchased on terms of margin trading, i.e, with the use of financial leverage. Thus, this investment instrument makes the investment and the stock market more affordable for small investors.

 

Disadvantages of ETF Investing

  1. In order to purchase ETF shares, an individual has to open a trading account with a brokerage company providing access to the stock exchange of the Fund. It may take some time to find such company, and the broker’s requirements for the deposit and the holder’s documents may cause additional complexity and costs.
  2. The investment risks will also include the typical margin trading liquidity and high volatility risks, which makes the work with the ETF generally more risky than investments in other investment funds.
  3. To purchase and sell ETF shares on the stock exchange it is required to have at least minimal knowledge about the financial markets, dealing with trading platforms and analytical work.

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