What are ETFs?

[CFD.net.au]

I posted this question in CMC Markets forum but it seem that no one could answer that. Hope anyone here could help to explain

I heard about ETFs, which is popular instrument on the market right now but don't understand what it is?

- What are different between ETFs and CFD (index trading) ?
- What are advantages, disadvantages between ETFs and CFD?

If you know anything, please sharing here. Regards,

 

[Stormin_Norman]

Re: What is ETFs?

ETFs are funds; groups of assets (could be stocks, gold, currencies or indexes).

CFDs are single stocks.

 

[glenn_r]

Re: What is ETFs?

http://en.wikipedia.org/wiki/Exchange-traded_fund

There are CFD's on ETF's, First Prudential and MF Global offer them

 

[Stormin_Norman]

Re: What is ETFs?

yo dawg i heard u like CFD's so we've put a CFD in a CFD.

 

[So_Cynical]

Re: What is ETFs?

I'm thinking with a name like CFD.net.au

CFD.net.au has an agenda? :dunno:

 

[CFD.net.au]

Re: What is ETFs?

I am trading CFD with CMC Markets, they offer something call CFD Canada Exchange Traded Funds which include Canada index.

They also offer something call CFD Canada index which is also index trading. I am still confusing with these one. It seems that there is no difference because I still buy/sell Canada index with both instrument. Am I correct?

 

[Stormin_Norman]

shouldnt the answer be on cfd.net.au?

 

[CFD.net.au]

I am software developer for that site and not a professional trader. Trying to understand concept to develop ETFs function.

 

[Temjin]

I posted this question in CMC Markets forum but it seem that no one could answer that. Hope anyone here could help to explain

I heard about ETFs, which is popular instrument on the market right now but don't understand what it is?

- What are different between ETFs and CFD (index trading) ?

Wikipedia / google search is your friend here.

But in a nutshell, ETF are exchanged traded funds, where as exactly what its name suggest, are funds that can be traded on the stock exchange market.

There are passively and actively operated ETFs. Passive ETFs are normally index tracking funds where it comprises a basket of assets that mirror, to the best of its ability anyway, the index it is trying to track. For example, the ASX200, the DOW Jones, other major countries stock exchange indices, and even individual industry. The managers do not actively try to "trade" the basket of assets.

Actively operated ETFs are funds managed by active managers who attempt to beat the markets through fundamental / technical trading strategies. Basically like managed funds but can be purchased through your normal broker.

ETFs normally do not have leverage built into them, except for a few where it can go long or short at twice the leverage. Actively operated ETFs may sometime operate on a combination of over 100% asset level with overweight in equity and less weight on cash, or vica versa depending on how the managers feel it is appropriate.

http://seekingalpha.com/ have more info here.

CFD tracking index? Well, isn't your website should have more info on how they works? I don't trade CFDs for various reasons, and as such, have less knowledge of it than ETFs. (and I can't be bothered doing googling now) They have the same index tracking ability of ETFs except that higher leveraging is allowed, and obviously, cannot be traded like shares on the stock exchange.

- What are advantages, disadvantages between ETFs and CFD?

If you know anything, please sharing here. Regards,

ETFs

Advantages

- Can be traded on the stock exchange market through any brokers.
- Low cost alternative to actively managed funds.
- A much larger variety than typical managed funds where not only ETFs can track individual stock exchange indices, but can also track its sub-indices (different industries) and even commodities such as precious metals, softs, grains, base metals and energy (known as ETCs) and financial instruments such as bonds, currencies, etc.
- As above, allow easy access to the global markets and in about every industries you want to trade with low investment cost. I could buy nuclear only stocks, agriculture only stocks, or the Russian stock exchange market with a click of a button.
- Have both long and short type funds.
- High liquidity as it does not depends on the liquidity of the ETF shares themselve, but the liquidity of the underlying market it is trying to track.
- Also allow easy access to the future markets with little investment. You can invest in the cattle commodity future with only few $10 dollars. Impossible to do with future contracts due to margin and high leveraging.

Disadvantages

- Will never outperform the indices due to fee issues.
- Not as mainstream in Australia yet, but very popular in the US and UK.
- Counterparty risks. Certain ETFs are backed by custodians with questionable financial strength. For example, certain exchanged traded commodities traded in the London Exchange through ETFsecurities have AIG as their counter party backing the market for these securities. If AIG fails, these ETFs may no longer be tradeable and result in complete lost. Though etfsecurities have set up mitigation strategies to counter the possibility of this event, but the risk still remains in my opinion.

for CFDs, you will have to do your own research for now.

 

[Abcguy]

Sorry, another newbie here:

So what you are saying is ETFs are like Unit Trusts except on the stock exchange only?

 

[Temjin]

Sorry, another newbie here:

So what you are saying is ETFs are like Unit Trusts except on the stock exchange only?

That's right, with the advantage of "redemptions" at any time and no lock in periods, and no minimum investment except for the one single share price.

 

[CFD.net.au]

Thanks so much Temjin!

As I understand your explanation, passive ETFs (on indices) similar to CFD indices which I know, and active ETFs is similar managed funds with some benefits such as operation fee, easy to trade. Am I correct?

In addition, can I re-post your explanation on my website?

Regards,

 

[Temjin]

Thanks so much Temjin!

As I understand your explanation, passive ETFs (on indices) similar to CFD indices

Yep, that's right. Though passive ETFs do have management fee, but very tiny. CFD do not and is not really designed for "long term" investment anyway.

active ETFs is similar managed funds with some benefits such as operation fee, easy to trade. Am I correct?

I wouldn't consider operation fee as a benefit.

Easy to trade, well, that depends on how you want to trade it. It is certainly a whole new area for equity trader who want to go beyond individual shares but do not want to pursue into leveraged products such as futures, options or CFDs.

In addition, can I re-post your explanation on my website?

Regards,

Sure. But there are definitely better explanations out there on the net. Perhaps you should also use them on your website.

 

[jovialTrader]

where to trade etf ? comsec ? cmcmarket ? i'm lost ...please help

 

[Temjin]

where to trade etf ? comsec ? cmcmarket ? i'm lost ...please help

ETFs can be traded just like any shares on the stock exchange via your usual broker. There are a number of Aussie based ETFs that can be traded through local brokers. However, ETFs are more popular oversea and a large majority of them are located on the US markets and on London Stock Exchange. So to trade them, your broker must provide the ability to buy international stocks.

Interactive Brokers (as being advertised so extensively on ASF!) will provide you with the platform to trade practically all ETFs on this planet at a low cost.

 

[beamstas]

Re: What is ETFs?

yo dawg i heard u like CFD's so we've put a CFD in a CFD.

yo dawg i heard u like xzibit so i put an xzibit in yo aussie stock forums so u can xzibit while u aussie stock forums