Exchange-traded funds (ETFs) are becoming popular in Asia, and for a good reason. An ETF that invests in Asian companies provides a way for investors to access offshore markets without the costs of opening an account with an international brokerage firm.
ETFs stand for Exchange-traded funds and are becoming a popular investment choice in Asia. ETFs have also proven to be efficient at tracking the performance of an index or sector over time because they provide access to markets that would otherwise require large amounts of capital.
This has made them valuable tools for professional traders who want fast exposure to specific sectors without taking too much risk.
So why do so many people choose ETFs? Here are four reasons why investors might consider using them:
Portfolio Diversification
Many countries ban the use of futures and options. As a result, ETFs are an excellent way of gaining exposure to specific markets, sectors or indexes without breaking the law.
Transparency
If you buy shares, your broker is required to give you information about what’s happening with your investment every day. This might not be possible with some mutual funds due to how they work. However, because all trades made with ETFs are made as standard stock transactions, it is straightforward to follow their progress over time and monitor their success.
Easy to trade
ETFs are incredibly liquid, meaning they can be bought or sold whenever the market is open. This means that there is no need for constant trading with ETFs, unlike many other investments where you have a set holding period.
Low transaction costs
A lot of investors make decisions based on costs. ETFs are one of the cheapest forms of trading in the market today, especially for those who trade a large number of shares at once. Most brokers offer trading in ETFs, but they typically do not hold any assets themselves and instead track indices like S&P 500 or FTSE 100, which means they only follow the price movements of big companies. This results in low transaction costs, but it also brings higher risk for investors if markets go down because they won’t be able to quickly sell these assets for cash during times of financial stress.
However, it also means the investor takes far less responsibility for making investment decisions, as they can buy a package that tracks an index or sector of their choosing. This has led to ETFs becoming increasingly popular, as they offer investors instant diversification and low fees.
Liquidity
ETFs are liquid investments that can be bought and sold like any other stock. This means you could make accurate investment decisions by knowing exactly when to buy or sell at the right time. Thirdly, ETFs can be bought through your broker or financial advisor if they are listed on an exchange in your country of residence. Lastly, there is no minimum amount required to open an account with the broker who offers the ETF just like regular shares.
Since tradable index-based products have become more prevalent in many countries across Asia, including Hong Kong and Singapore, investors in East Asian countries will benefit from lower costs and greater liquidity in their market compared to investing in traditional open-ended mutual funds, which require a significant minimum investment and where transaction fees can be as high as 3.5% of your total purchase.
Finally
At the end of it all, ETFs often provides a great way to generate returns and reduce risks in your portfolio. It’s important to remember that while managing risk is essential, it should not be done at the expense of missing opportunities in the market. We recommend those beginner traders interested in ETF trading use a reputable and reliable online broker from Saxo Bank and trade on a demo account before investing real money.
