There are numerous assets to invest and trade in the financial markets. The most common and widely known are stocks and currencies.
However, experienced financial traders in Singapore have access to other assets such as commodities, derivatives and ETFs.
In this article, we will learn more about trading ETFs.
What are ETFs?
ETF means, Exchange Traded Fund. This is an investment fund that invests in assets such as stocks and is itself listed in a securities exchange for investors to purchase.
ETFs normally, track the price of the assets that they are invested in. The price movement of the assets they are based on is the basis of their trading price.
There are many ETFs in many advanced securities exchanges all over the world. Further, financial market traders have access to hundreds of ETFs that they can invest and trade on, in the virtual financial markets.
Types of ETF
These are some of the most popular ETFs traded.
Sector or industry ETF
This is an ETF that invests in stocks and other assets of companies within a particular industry. For example, an industry ETF will be composed of stocks of companies in the finance or tech industries only.
An ETF that invests only in bonds, from both governments and companies.
An ETF that invests in a particular commodity such as coffee.
Actively managed ETF
This is an ETF that rather than track the price of the assets it is based on seeks to outperform it. This kind of ETF is quite popular and usually has many investors. They are tracked over a long period of time, to have comparable data on its performance versus the assets it intends to outperform.
This is an ETF that tracks the entire market.
Benefits of trading ETF
Easy to trade
Trading ETFs is quite easy and flexible. Other funds, for example mutual funds are only traded with the owner of the fund. ETFs are listed on securities exchanges and can be bought and sold as simply as company stocks.
The price of ETFs is based on the price of the underlying assets within the fund. A rise in the price of the underlying assets translates into a rise in the price of the ETF.
Investors can therefore easily tell how the price will move by analyzing the assets within the ETF before they can make an investing decision.
Easy diversification strategy for the investor
Trading in an ETF means that the investor is already well invested in a range of assets. This ensures that they do not have all their eggs in one basket. By encompassing a range of stocks or commodities, the investor is not overly exposed to a single stock.
With a single transaction, you can have a diverse portfolio rather than having to buy all the stocks that make up the ETF, individually.
For every purchase of a particular asset in the market, your broker will charge you a commission. If for example you are accumulating technology company stocks, you will perform several transactions to purchase each stock. For each purchase transaction, there will be a commission charged. Leaving you with high purchasing costs.
With an ETF, you are able to avoid the high commissions on purchasing as you buy a basket of all the stocks you want at once. Thus, incurring only, a single purchase commission.
Regular dividend payments
By the virtue of being publicly traded, investing in an ETF will see you earn regular dividends.
Investors in ETF also enjoy lower taxes. For ETFs, capital gains tax is only realized upon the sale of the assets unlike mutual funds that impose capital gains tax on their investors annually.
Trading ETFs in Singapore is as easy as seeking a financial markets intermediary to help you access the market. Once you have funded your account, you have access to thousands of ETFs that you can immediately invest in.