Following the previous article in part two, this part would complete all the types of ETF in a more comprehensive way. The first would be commodity ETFs. These types of ETFs invests in commodities, not exceptionally crude oil or gold. Commodities in ETFs exist for a lot of benefits. It could diversify the portfolio and ease the hedge downturns. Then, holding shares here allows the cheaper physical possession of the commodity. Next is the currency ETFs, it tracks the performance of currency pairs consisting both domestic and foreign currencies.
There are actually many reasons why people choose currency ETFs. Sometimes, they use it to speculate the value of the currencies based on both economic and political considerations. The use could also come in a way that it could diversify portfolio and hedge to battle volatility. The third is inverse ETFs. People use it because they expect to gain from stock declines by shorting stocks. So, when the price of stock declines and the repurchase price is low, they use derivatives to short stocks.
The last type of ETFs is leveraged ETF. This type seeks to return multiples for the underlying investment. The epitome would be, when the S&P rises, the leveraged ETF would also rise. But when it falls, the ETF also falls. This kind of ETF has derivative products like options and futures contracts to maximize the returns. Inverse ETFs own leveraged inverse seeking multiple returns in an ETF.
Investing in ETFs has become very easy these days, this is because there are many platforms available for the traders. But, it does not mean that investing in ETFs is risk free. There are many things to consider before investing in ETFs.
