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Trade Articles

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Grow And Diversify With ETF

By Hector in Trade Articles on 08 July 2020

Grow and Diversify With ETF

 

ETF or Exchange Traded Funds are getting popular with traders and investors as they capture broad indices or sectors in a single asset. This may be useful for investors who are not familiar with the stock to invest but is bullish on a particular sector.

For example, due to the Covid-19 pandemic, an investor may be bullish on the biotech sector but does not want to risk it all in a single biotech stock. Instead, he or she may choose to invest in a biotech ETF that has holdings in companies doing clinical trials for the coronavirus vaccine.

In this article, I will explain what are ETFs and how to invest in them with the tools in POEMS.

 

Grow And Diversify with ETF

 

1. What is an ETF

 

An ETF is an open-ended investment fund listed and traded on a stock exchange. It holds multiple underlying assets and aims to track and replicate the performance of the underlying index or asset.

 

2. Diversification

 

ETFs are popular to investors looking for diversification and risk management. Even though they are traded like shares, they give investors an exposure to a basket of securities instead of exposure to a single company.

Also, ETFs offer trading flexibility as they are traded during the day when the markets are open. This is unlike Unit Trusts which are traded only once per day after markets close.

 

3. Types of ETF

 

There are various types of ETFs and investors can choose them according to their risk profile. They can be invested for income and yield return, speculation, capital gain or hedge against risk in an investor’s portfolio.

Below are some types of ETFs and their underlying assets :

a. Bond ETFs – Government bonds, Corporate bonds
b. Commodity ETFs – Crude Oil, Gold
c. Currency ETFs – Foreign Currencies
d. Industry ETFs – Tech, Banks, Healthcare
e. Inverses ETFs – Gain from decline in stocks

 

4. Risk 

 

As with any investment, there are risks associated with ETFs. Below are some of the risks:

a. No capital guaranteed
b. Counterparty risk
c. Foreign exchange risk
d. Liquidity risk
e. Trading at discount or premium
f. Market Risk
g. Tracking error
h. Risk involved leveraged and inverse ETFs

 

5.Tools of ETF on POEMS

 

Unlike Unit Trusts, ETFs’ holdings information are available through their prospectus to the public at any point in time.

Investors should see if the holdings, sector and country breakdown matches their asset allocation and risk appetite. Also, some indexes’ holdings are more or less equally weighted while others may allow one or two big names to shoulder the burden of the indexes’ performance.

To help you in your selection, you can make use of POEMS ETF screeners tools (https://www.poems.com.sg/etf-screener/to filters the 3,000+ ETFs listed on SGX, HKEx, AMEX and many more. After choosing the ETF that you are interested, you may check out the ETF’s holdings and their weightages.

 

ETF Screener

 

6.How to Trade ETF on Poems

 

Our regulator MAS requires all retail clients to complete the “Customer Account Review (CAR)’ if you wish to trade Exchange Traded Fund (ETFs).

You may submit your CAR and CKA Assessment online as follows:

Log in to your online trading account via POEMS 2.0 platform. Complete and submit the CAR and CKA Form by going to “Acct Mgmt” > “Stocks” > “CAR & CKA Form” > “Submit”.

Click Demo Guide CAR /CKA on how to submit.

For more information ,Read CAR/CKA.

 

7.Conclusion

 

As new investment trends and ideas get underway, there will be more ETFs introduced to meet the investment demand. Traders and investors may want to invest in them for reward opportunities. However, just like any other investment, there are risk with ETFs. But with proper risk management, you can make use of the characteristics of ETFs that include diversification, low management fee, trading flexibility and innovation to construct your portfolio of ETFs.

 

Happy Trading!
One Good Trade

P.S.  If you know someone who could benefit from this article, please feel free to share it with them. Thank you!

 



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