Investing

The Benefits of Trading Cryptocurrency and Exchange Traded Funds

There are hundreds of different investment vehicles to chose from these days.  Investors are faced with a plethora of choices, each with a different benefit. During 2018, crypto currencies took the market by storm initially surging and making it difficult for new investors to buy in. Now that prices have come back to earth, the opportunity is available. There are also dozens of exchange traded funds (ETF) which are securities that provide access to several markets. Some of the more interesting include sector ETFs which allow you to take a view on a specific sub-sector of the equity markets.

What Are Exchange Trade Funds?

An ETF is a security that provides exposure to either one or a basket of different securities. For example, there are ETFs on currencies and commodities such as the Euro or Crude oil. There are also ETFs that provide exposure to baskets of stocks such as the S&P 500 index or the Dow Industrial Average. Some of the more interesting ETFs are sector ETFs. These are exchange trade funds that hold securities in a specific sub-sector of the equity markets. For example, the XLE ETF holds oil and natural gas producers as well as refiners and oil service stocks. There is also a financial sector ETF (the XLF), which holds banks, brokers and insurance companies. The benefit of these ETFs is substantial. If you want to take a view a specific sector as opposed to the broader markets these ETFs will provide you with this type of exposure.

Additionally, these types of ETFs allow you to take positions that are market neutral. For example, if you believe that the technology sector ETF (XLK) is likely to outperform the utility sector ETF (XLU) you can purchase the XLK and simultaneously sell the XLU ETF. Here you will not have exposure to the movements of the broader market, but instead will benefit if one sector outperforms another sector.

What are Crypto Currencies?

Crypto currencies are digital currencies that do not have the support of a sovereign nation. Standard currencies are regulated by the central bank of a country or the monetary authority of a union (such as the European Central Bank). Crypto currencies usually handle either payments or provide access to specific platforms.  For example, the most liquid and most popular crypto currency is bitcoin. This crypto currency uses blockchain technology which reduces fraud substantially. To create a coin takes significant effort and a lot of electricity.

Bitcoin is used as a payment currency to buy and sell goods and services, as well as an investment vehicle.  You can purchase a bitcoin using a sovereign currency like the dollar or Euro or another crypto currency. There are also crypto currencies that are used to purchase access to platforms. Ether is the most popular and is used to access the Ethereum platform. Some are used in the financial services space such as ripple.

Summary

What is important is that you perform some due diligence before you trade either ETFs or cryptocurrencies. Make sure you understand what you are trading and how that markets moves before you take a position.  An iFOREX review of these products will allow you to attain a full understanding of both crypto currencies and ETFs before you risk your hard-earned capital.

About the author

Justin Weinger

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