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The advantages and drawbacks of ETF trading

The advantages and drawbacks of ETF trading

ETFs are financial products that are consistently increasing in popularity with online traders. These products make diversifying one’s equity portfolio quick and easy.

ETFs are accessible to everybody

The way ETF work is easy. They are true index funds, quoted on the stock exchange and they replicate the performance of an index, like the CAC 40 or the Dow Jones, for example.  They are transparent products because they mirror a portion of the index they track. They are also simple products that can be bought and sold throughout the day and are subject to the market in real time, the way shares are. ETFs are hugely diversified and can track market, sectorial or commodity indices.

ETFs are simple to work with

One of the biggest advantages of ETFs is the fact that they are accessible to individuals in a simple way with limited fees. Indeed, one just has to place a order to buy or sell, to enter or exit the market. ETFs are trading products that are easier to manage than stock options, which is why ETFs are widely offered on online trading platforms. Rather than buying real shares, which is a true investment, it is possible to buy ETFs which are less constraining.

Another advantage of ETFs is that they allow individuals to access the performance of hundreds of shares by buying only a few ETFs. With an initial investment of a few dozen or hundred euros, it is possible to reach the same degree of diversification as the largest portfolios.

Thus, even a trader with limited resources can create a diversified portfolio and hence really secure their investment. It is well known that diversification is pivotal to managing a stock portfolio.

ETFs work the same way as the stock indices they track and it is possible for each trader to adapt their strategy based on the market, to buy and sell ETFs depending on market opportunities. 

Successful investments

Another big advantage of ETFs is the fact that they enable buyers to enjoy dividends. Indeed, ETFs include the value of the indices they track and thus receive the dividends paid by those indices.

ETFs do, however, present some risks that buyers must be aware of before they decide to trade, but the advantages of ETFs are numerous and provide many opportunities for easy and effective trading transactions that are attracting more and more traders, both amateur and professional.

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Last Update on 30/11/17

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