ETFs Definition – What are Exchange-Traded Funds? | CFI

exchange-traded funds (etfs)

Exchange-traded funds or etfs are investment funds that trade onvarious stock exchanges. etfs trade over a session (the course of one day of trading) and trading closes at its net asset value. the investment funds can comprise of various assets such as commodities, [bonds], or stocks and can only be bought or sold from authorised participants and then only in specified blocks of shares in the etf.

Etfs tend to track [stock indices] but may also consist of shares in various companies all of which may operate in the same industry sector such as a gold miners etf.

Traders need to take into consideration that there are numerous costs associated with this investment fund. two of these costs are:

 

  • commissions payable - the more one trades, the higher the commission to be paid from your investments. however, some platforms offer commission-free options.
  • spreading impact –meaning in most cases a loss is suffered as one would purchase at a certain price but the impact of [spreading] dictates that these shares have to be sold at a lesser price than what it was bought for, therefore it's advisable to go for a smaller spread.[limit orders] can be used to mitigate this factor.

 

Some of the key advantages of etfs include the fact that they are completely transparent, offer great diversification, they offer a reduced tax liability in most countries and lastly, a liquid market enables etfs to be bought and sold easily.

 

There are also several challenges associated with etfs that traders need to take note of. when derivatives are used with etfs, one party might not make good on the agreement between them and there is also the risk of tracking errors involved as etfs don’t always track their indices accurately.

 

key takeaways:

  • Etfs are investment funds that trade on stock exchanges.
  • Traders need to take into consideration the various costs associated with trading etfs such as the impact of spreading and commissions payable.
  • There are several advantages and disadvantages associated with etfs that traders need to be knowledgeable about.

 

Credit Financier Invest (Mauritius) Ltd is an award winning global financial markets provider with over 23 years of experience and regulated entities in several jurisdictions, focused on offering impeccable execution and trading conditions including very low spreads, professional services, dedicated support and powerful tools.
Credit Financier Invest (Mauritius) Ltd has regulated subsidiaries in
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Important Disclaimer:


We would like to remind that while we endeavour to provide best possible services, CFI provides execution only services and any information, reports, opinions, commentary or other materials he receives from CFI directly or from its employees or through any analytical tools provided to him or third party research provided to him from the Company shall not be deemed as investment advice and it cannot be relied upon to make investment decisions. The Client commits to make his own research and from external sources as well to make any investment. The Client accepts that CFI will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The contents of any report provided should not be construed as an express or implied promise, as a guarantee or implication that clients will profit from the strategies herein, or as a guarantee that losses in connection therewith can, or will be limited.


Forex and CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The possibility exists that you could sustain a loss in excess of your deposited funds even if a stop loss is used and therefore, you should not speculate with capital that you cannot afford to lose and be aware of trading risks. Credit Financier Invest (Mauritius) Ltd provides general information that does not take into account your objectives, financial situation or needs. The content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary.

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