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2.7 Advantages,Disadvantages of ETFs

Let us now take a look at the advantages and disadvantages of the Exchange Traded Funds (ETF) markets

Advantages

  1. You can short the market just like you do for the stocks of Forex. We can make money as the market falls.

  2. Lower fees to manage the funds – Lower fees is always an advantage for any kind of trading. You can retain more of the upside and minimise the downside leading to less expense.

  3. Tax Efficient – Great market to get involved in if investor is looking to be efficient in the tax payment.


Disadvantages

  1. Spreads can be too high. Due to market being less liquid or not having too many participants. Buying and selling would have larger spreads for the broker to make some commission.

  2. There are international limitations – If you are in a certain country, you might not get the availability of the ETFs. If you are working with a good platform, it will give you access to ETFs from other countries.

  3. Low Activity – This would mean that we might not get much movement in the ETFs. This limits profit opportunities. High volatility would mean more movement and more profits within a shorter period of time. Low activity would mean lesser movement and lesser profits within a shorter period of time. This could be a market to hold over a period of time.


You got to keep these disadvantages in check to look for other opportunities.
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