What Are Exchange-Traded Funds?

What Are Exchange-Traded Funds?

Earlier this year, the US decided that Bitcoin would now be allowed to form part of mainstream investing funds. The Securities and Exchange Commission approved the use of Bitcoin exchange-traded funds (ETFs), which anyone can use, however, the announcement was accompanied by a warning regarding the risks that are known to be associated with the asset.

The announcement was an instant hit with crypto traders and investors, and the approval is a huge win for serious investors and firms within the crypto sphere. Requests for approval have long been rejected, with previous concerns about the potential fraud and manipulation issues that ETFs are associated with. There are pros and cons regarding ETFs, so with that in mind, let’s take a look at what exchange-traded funds are and how they can be used.

What Is An ETF?

Exchange-traded funds, or ETFs, are an investment security type that are bought and sold just like any other individual stock. ETFs have previously been structured so that they can track data, such as the price of an individual commodity, to a more diverse range of securities. ETFs can also be designed to track specific investment strategies, which is one of the reasons why they are so popular with investors.

ETFs allow investors to invest in multiple different asset classes, without having to buy them themselves. Just like shares, they are traded on stock exchanges and their independent value is determined by how the portfolio is performing in real-time. ETFs can be anything from gold and silver to shares, which is why it is such an exciting investment for traders and investors. However, it is also a market that is quite synonymous with risk and fraud and is one of the more popular trading scams, which is why traders and investors need to be cautious.

Why Did This Announcement Cause So Much Excitement?

Investment companies have long been waiting for the Securities and Exchange Commission to approve ETFs and this announcement has meant that investors can now enter into a new area of trading and investing, without the worry of digital wallets or having to use crypto exchanges. It is predicted that, since the US approved ETFs, traders are likely to have invested billions of dollars in the market. As such, the value of Bitcoin in the year following the announcement is expected to increase in order to meet the new demand.

How Do You Buy ETFs?

ETFs are traded through broker-dealers and typically via online brokers. This is where some of the concerns regarding the safety of the crypto come in. Some brokers will appear to know all there is about the crypto, but when it comes to making the trade, they won’t be confident in what it is they are doing, resulting in a loss for the investor. As well as this, a lot of scam brokers will pose to be legitimate and, once they have their client’s funds, they will soon disappear. Fraud recovery in these instances can occur and many brokers do end up getting their money back, but it is also important to follow good trading practices to avoid this.

ETFs are available on a lot of online investment platforms and many of these offer commission-free trading, so investors don’t need to pay fees to platform providers. Once a brokerage account has been created, investors can search for, buy and sell EFTs.

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