ETFs have been gaining ground as a popular trading instrument over the past few years. There are several reasons why traders are looking toward ETFs, with instant diversification high on the list of why they are worth trading. Let’s take a closer look at what ETFs are, and why you should consider trading them on the IQ Option platform.
What are ETFs?
Exchange Traded Funds are funds traded in real time, similar to the way stocks are traded. ETFs track indexes and can be comprised of commodities, bonds, or baskets of assets. Below we’ll highlight 3 of the distinct advantages associated with trading ETFs.
1. Broader market exposure
ETFs offer access to multiple markets without having to buy an enormous number of individual stocks. In other words, they enable investors to expand their portfolio over several different investments. Additionally, since ETFs track and index and have identical performance, the risk assumed is lower than traditional stocks. One of the wisest moves in trading is avoiding putting all of your eggs in one basket, and ETFs enable traders to diversify their portfolio.
2. Flexibility and liquidity
ETFs and their baskets of underlying assets are tradeable throughout the day, meaning prices fluctuate as ETFs are bought and sold. Essentially, they are traded like stocks, providing traders with the ability to short sell or buy on margin during market hours. They also give investors the option to invest in a niche or specific market sector, such as technology. An ETF’s liquidity depends on its asset class, but generally speaking ETFs are viewed as having high liquidity.
3. Hedged risk
There is always risk involved in trading, no matter the instrument. However, ETFs carry less risk than traditional assets because of their diversification. Think about it this way: since you are trading with a basket of assets instead of one or two specific stocks, there is a greater chance that the losses of one or two assets can be averaged out by the gains of other assets comprising the ETF. Of course, the level of risk varies according to the type of ETF you decide to trade, with some carrying higher risk than others.
Thanks to their liquidity, diversification, and transparency, ETFs are becoming increasingly popular, making for interesting trade opportunities. If you are looking for a new way to expand your trading portfolio, you might want to give ETFs a try.
