Exchange-traded funds, better known as ETFs, resemble mutual funds in many ways. As their name implies, exchange-traded funds are traded on exchanges like stocks through a traditional brokerage account. They generally track the price of a specific asset (like gold) or an index (like the S&P 500), allowing investors to access an entire asset class without investing directly.
How do ETFs work?
Like individual stocks, ETFs are listed on stock exchanges. Their share price will go up and down during trading hours. Mutual funds’ net asset values, or NAV, are almost always priced daily, generally after the exchanges close. ETFs typically track the price of their parts by buying and selling them whenever the cost of either begins to diverge.
Most ETFs operate as a wrapper encompassing many individual securities. Adding many stocks, bonds, or other types of investments with one purchase makes mutual funds and ETFs a compelling way for retail investors to diversify their portfolios.
Blockchain ETFs
Many countries have yet to decide on their position on cryptocurrencies. Bitcoin ETFs are currently the most popular crypto ETFs. But Bitcoin ETFs (like Bitcoin Investment Trust) that operate in the US do not directly own the currency. They hold portfolios of stocks with exposure to blockchain. Investors can also access cryptocurrency assets through Blockchain ETFs. A typical crypto ETF management fee is around 2 percent.
There are, however, different services provided by other platforms in the few places where their application has been approved.
(written by Catherine S Thomas)
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