The trading techniques and methods available to investors today is often hard to keep up with, especially for those just starting out in the stock market. With new terminology and strategies to keep up with, ETF trading and Mutual Funds trading are just two more terms you may be avoiding. Whether you aren’t sure what these terms mean, or you’re searching for a comparison of the two, we’re taking a deeper look to give you a head start.
What Are Exchange Traded Funds?
Exchange Traded Funds (ETFs) are essentially investment funds that can be treated like, bought and sold on your typical stock exchange just like other shares and assets. An ETF acts as a ‘basket’ or collection of stocks and bonds all compiled together into a single tradable format that makes purchasing a number of stocks as simple as trading one share. There are no time limits through stockbrokers, meaning that current traders can maintain and develop their current trading accounts without needing to make any further accounts or special measures. SSE countries who are a part of the European Union are able to access a number of ETFs as long as they are traded as cross-border UCITS III funds. Some of these include ETFS All Commodities DJ-AIGCISM, iShares DJ STOXX 50 and Lyxor ETF MSCI Europe.
What Are Mutual Funds?
Mutual funds are essentially a strategy for investment that allows you and other traders to come together with a pool of money in which to purchase stocks and securities. The collection together is often known as a portfolio and it is the joint responsibility of each participant to become a portfolio manager. For this reason, any trading decisions are usually made by more than one manager in a mutual decision.
The Good
ETF |
Mutual Fund |
They tend to be cheaper than mutual funds, offering around a 0.21% expense ratio compared to a 0.59% ratio for Mutual Funds.
They’re much more accessible. Most brokers offer ETFs, so you can easily get involved in the buying and selling without needing new accounts
You can buy and sell at any time of day, even after the markets close.
The fees are often low and some brokers may even offer commission-free ETF trading.
|
Mutual funds work well for new investors looking to get their foot in the proverbial door by offering trading support.
You can buy them directly through a fund family which works out cheaper than buying it through a broker.
You can actively manage your mutual funds unlike ETFs, which are usually passively tracked instead. |
The Not-So-Good
ETF |
Mutual Fund |
It can be costly to trade if you’re investing small amounts on a regular basis.
Some ETFs suffer from being thinly spread, meaning that you could see illiquidity. You’ll sell low and buy high, which doesn’t work out profitable.
Settlements take 2 days or more, meaning that after any sales, you’ll have to wait before you can go on and invest that money again. |
Returns are often unpredictable and can fluctuate regularly. You may have to watch the stocks closely even with fund managers in charge.
Professional assistance comes as standard with most mutual funds but does mean having to pay and cater for hefty fees in some cases.
Diversification doesn’t always work. If all stocks are in the same industry, you won’t cancel out or reduce any risk in most cases. |
So, Which Is Better?
The trading type that is ‘better’ will ultimately depend on you, your trading styles, and which you’d feel more comfortable utilising. ETFs are often thought to be better for established traders, and mutual funds for younger investors or those new to the industry but this all comes down to which you prefer when it comes to the stock markets.
Throughout the 2000’s, South East Europe has gradually become more integrated with both regional and international stock markets, helping to further broaden opportunities for traders in the area. Changes in UK and US equity markets have continually impacted the standing of the SEE markets and while these changes are not uniform, there are a number of correlations which can be drawn to decipher than SEE is continually developing and diversifying portfolio opportunities for traders in the area.
Our guide has covered the basics, but hopefully, this can help you decide which trading option may be the best for your needs.
*This article has been provided to SeeNews as part of a partnership with freelance writer Damien Troy.