Exchange Traded Funds Market

By: EconomyWatch   Date: 31 July 2009

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The exchange traded funds market has enabled investors to mix and match the advantages of mutual funds and stock market into one category and trade with high liquidity throughout the day. Gauging the ease of operation and lesser risks, investors flock towards exchange traded funds market for achieving quick diversification and profits.

 

How the Exchange Traded Funds Market Works
 

The ETF market operates through its diverse players, primarily big financial institutes. These institutes devise an investment plan to attract other big investors. If these investment plans are well received by the top players, the institution buys the necessary stocks as mentioned in the plan. Once the complete portfolio is bought, it is kept with a trustee who, in turn, issues the EFT certificates. These certificates are then marketed in the different financial markets as shares.

 

The exchange traded funds vary from one another based on the following:

  • Size of the portfolio

  • The area, region, market, sector and industry they invest in.

  • The index they follow and try to replicate

  • Strategy of investment (regular or inverse)

  • Kind of underlying securities

  • Companies that they are created by

  • International or national underlying securities

  • Style of management (active or passive)

  • Availability around the globe or only national presence

 

There is no limit of classification in the ETF market. Different companies create different ETF to generate a unique selling point for their product. This has led to innovations in the exchange traded market and the large numbers of ETFs on offer are the best proof.

 

Key Elements of the Exchange Traded Funds Market
 

The ETF markets are markets inside a financial market. So, they are governed by the same rules as are those markets. The key players are:

  • A regulatory body

  • ETF creators: There are over 26 well known ETF issuers that through their different portfolio invest in diverse securities.

  • The financial market they are marketed in: The ETFs operate in different markets like forex, stocks and commodities.

  • Investors.

 

The exchange traded funds market, with its flexibility, has enabled millions of investors to reap the benefits of the different financial products that have come up. The ETF markets pack everything like mutual funds however, they are still sold like stocks.

 

 

 


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