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What is an ETF
Market terminology

ETF: benefits of working with the Exchange Traded Fund

10.10.2022
2 min read

How to use ETFs to form an investment portfolio

Exchange trading offers the opportunity to trade a huge number of assets, and the number is growing regularly. In addition to traditional instruments, such as currencies and stocks, traders have access to cryptocurrency and other options. Separate attention deserves such an object as an ETF – Exchange Traded Fund.
An Exchange Traded Fund is a sort of index indicating the value of an investment portfolio owned by a company. At the auction, this portfolio is offered as a single share. Essentially an ETF can be described as an analysis of stock indexes for securities, but when forming it first of all take assets that have excellent prospects for growth. This feature of the ETF allows the U.S. to include it when assembling the investment portfolio of non-state pension funds.
When working with such a tool, the trader acquires shares of an investment company, and their value regularly goes up. ETFs are an ideal option for long-term investments. Analysts predict that this segment of the stock market will grow by 15-30% each year. You can increase your earnings by several times by using leverage.
ETFAdvantages of using ETFs:
– it is possible to apply all actions as for the standard action;
– it is possible to use leverage;
– the spread is removed when opening a deal;
– the minimum share price starts from 10 dollars;
– the minimum deposit is 100 dollars.
There are about a thousand ETFs on the market now, and their number is growing. In addition, the trader can use this tool, formed not only from the assets of the United States but also from other countries, when trading.
The easiest way to see how ETFs can be used is with an example. A notional ETF buys stocks of the top ten American IT companies. The trader in turn buys the securities of that ETF – and thus he becomes an indirect owner of the technological giants’ assets and can receive dividends. In addition, the value of the companies’ shares will increase, which will make it possible to make a profit when selling ETF securities.
Using a fund of this type is convenient if a trader wants to add to his portfolio shares of a company whose price is too high for direct purchase. An ETF, on the other hand, makes it possible to buy one’s own securities at an affordable price. In addition, all the processes of forming a portfolio are transferred to the fund, not to the trader. This approach will be convenient for beginners and those players who do not have a lot of time. In addition, ETFs allow investors to invest in specific market segments without analyzing them in detail. The profitability of such funds grows, you can choose one or the other, depending on the company’s portfolio.

Tags: Market terminology
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