ETFs are low cost means to gain exposure to the stock market. They offer liquidity and real time settlement as they are listed on an exchange and trade, much like stocks. ETFs replicate a stock index, offering diversification as opposed to investing in few stocks of your choice.
ETFs offer flexibility in the way you wish to trade like selling short or buying on margins. ETFs also provide access to a host of alternative investment options like investing in commodities, foreign indices, and international securities. You can also use options and futures for hedging your position which is not available with mutual fund investing.
However, ETFs are not suitable for every investor as they require deep market understanding and knowledge. Which is why Index funds are a better option for new investors who want to experience the benefits of equity investing for the long-term without having to choose specific stocks.
Choosing the right ETF requires a thorough understanding of the financial market than what most retail investors possess. Thus, a bit of hands-on investment style to manage your ETF investments is a must.
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