ETFs are Exchange Traded Funds that have grown in popularity over the years. They are an investment vehicle consisting of a fund that holds multiple stocks, currencies, or commodities to create a diversified portfolio.
ETFs are traded on exchanges just like equities meaning they carry risks associated with stock investments such as volatility and relatively lower liquidity than investing directly into stocks. These can be less beginner-friendly, especially for those new to the markets and their complexities.
Are ETFs beginner-friendly?
Given their complexities, it is not advisable for beginners who lack adequate knowledge of how equity markets work. For instance, some people may invest blindly in ETFs without understanding what they stand for, leading them to incur losses along with unnecessary fees and commissions if they are not careful.
At the same time, ETFs can offer beginner-friendly solutions, especially those who do not have the capital to invest directly in stocks. For instance, you’ll only need S$1 to start investing in ETFs through our recommended broker, which makes it a great way to begin your journey as an investor.
Why Trade ETFs?
There are many reasons why someone would want to start trading ETFs. For instance, they offer diversity by pooling together multiple assets. It not only minimizes risk but can also generate profits by capitalizing on price appreciation in specific markets. Also, their simplicity compared with traditional mutual funds makes them very beginner-friendly.
How to Start Trading ETFs
There are two common ways you can start trading ETFs: through your stock brokerage account or a futures account. As ETFs trade like stocks, it is possible to buy and sell them on the stock market.
However, as mentioned earlier, a separate account with a broker specializing in futures contracts will allow you to access more efficient levels of liquidity and better pricing for transactions involving commodities such as ETFs. Either way, make sure that you learn how to read charts and graphs thoroughly first!
Trading ETFs in Singapore
ETFs are top-rated financial security among the retail investor community, with over $1.7 trillion worth of EFTs trading on major exchanges across the world daily. It is not surprising to see why so many investors gravitate towards these securities; they provide access to many underlying assets, ranging from stocks and commodities to indices, and come at relatively low fees.
The vast majority of Singaporeans join the investment fray by way of EFTs. While there’s nothing wrong with investing in EFTs, it might be worth thinking about diversifying your portfolio more widely given the relative volatility of the Singaporean equity market, as well as the risks associated with EFTs.
One way is to trade ETFs; Exchange Traded Funds that track indices, commodities, or baskets of securities like an EFT. While you can’t invest directly into an index like STI (Singapore’s benchmark index), say, with ETFs, it is possible to invest in one.
ETFs are traded the same way as any other stock on the SGX, so the procedure of buying and selling them is simple enough for most investors to understand without outside help. You have two choices when trading ETFs on the:
- Go Short: selling ETFs to repurchase them at a lower price.
- Go Long: buying ETFs with the expectation that their prices will rise. You should be aware that ETFs can sometimes trade at premiums or discounts from their net asset value. In such instances, it is essential to remember that you’ll have to factor in execution fees when making your trades. It can add up over time and eat into your returns.
In short, if you’re going long, ensure you have a target price. If you want to go short, secure enough capital to cover your margin requirements so nothing goes wrong!
If you are always stressed out or overwhelmed by market volatility, you may need guidance on better managing your portfolio. Contact one of the reputable online brokers at Saxo Bank and learn more about exchange-traded funds and how they work. Start your investment journey now; check over here.