ETFs or exchange traded funds are composed of stocks and bonds within an index that can be easily tracked. But unlike a mutual fund, ETFs are traded just like common stocks on the stock exchange. Also unlike mutual funds, ETFs usually have a higher liquidity and lower fees than a mutual fund. Investors of an ETF own part of the assets included in their share of stocks. While shareholders cannot lay direct claim to their investments, they do have an indirect claim to the assets themselves. But one of the biggest advantages of an ETF is the earned interest and dividends paid to them as a shareholder. The best ETFs include Vanguard Total Stock Market, Schwab US Large-Cap ETF and SPDR Barclays Convertible Secs ETF. If you are interested in the best ETF, ask these questions.
In comparison to mutual funds, the fees associated with ETFs are rather low. Still, you may want to do a comparison when choosing an ETF to make sure you aren't losing too much in fees.
What are the prices?
The prices of ETFs will be different from ETF to ETF, but in more ways than one. ETFs may change price throughout the day as investors buy and sell them, making it difficult to determine just what the price of an ETF will be.
Do I have to pay to buy and sell?
In order to buy and sell shares, you will need to pay a commission to your broker just as you would with any regular transaction when using a broker. When using the service of another, expect to pay appropriate fees. You may need to inquire on these fees beforehand.
What is arbitrage?
Arbitrage opportunities keep the ETF prices at their fair market value or at least very close to it, since assets are usually tradable throughout the day and can change at a moment's notice.
What are leveraged ETFs?
Leveraged ETFs are created through the use derivative products. The leveraged ETFs can gain a multiple return on the underlying ETF, which makes it increasingly attractive to shareholders everwhere.
What are the underlying assets?
Underlying assets can be anything that which a shareholder can own a piece of. This may include, but not be limited to gold, oil, foreign currency, and bonds among other assets.
What are other advantages of trading ETFs?
Because ETFs are about as diversified as an index fund, and they can be sold short or .bought on margin, this makes them exceedingly desirable to investors. They also have lower expense ratios in comparison to mutual funds.
How much will I be taxed?
How much you'll be taxed can vary depending on your investment, but its important to point out that taxation on ETFs is relatively low since money is not directly passed to you as it might with a mutual fund.