Exchange-traded Funds – ETFs – are financial instruments that closely mimic other instruments or baskets of instruments. They are, similar to stocks, traded on stock markets where they usually follow indices, such as the S&P 500.
Lately, ETFs have become the talk of the town because of their generally stable nature and the opportunities they pose as we’re heading for a full-blown recession. With that said, there is always risk involved and we do not recommend anyone investing or trading anything without proper knowledge.
Step 1: Find the Best Platform
Your first task is to find the best platform to use for your investments, ie. the best broker with a trading or investment platform that you feel comfortable using. A good place to start is to compare the leading ETF brokers in the UK, open demo accounts with a few of them, and pick the one that you like the most.
Also, you should consider whether you prefer using your computer or a mobile device while investing and trading since some brokers are better for mobile trading than others.
Personally, I prefer trading on my mobile device since it’s more practical and it allows me to keep track of my investments at any time. However, professional day traders tend to prefer using a solid trading station and a desktop computer.
Should You Trade or Invest?
Next, you should figure out if you want to focus on short-term trading or long-term investments. Many of the best brokers in the industry support both so you can often make this decision after you’ve picked your broker. Naturally, you could also combine the two if that feels more appropriate.
Short-term trading is, in many ways, more complicated than investments since you need to be able to act faster and analyse smaller market movements. Those who trade ETFs usually do it using CFDs (Contract for Differences) which is a form of fast-paced speculative trading.
The benefit of this is that you can make regular – almost – daily profits as long as you find a working strategy to apply.
Long-term investments are not as fast-paced and, for most people, are easier to get started with since you don’t have to actively keep track of your investments but can let them go for days or even weeks at a time.
The downside is that you won’t make any real profits until several months, or in most cases years from now.
Benefits of Trading and Investing in ETFs Right Now
The reason why I wrote this article is that ETFs are very hot right now, and the reason for that is the looming recession.
You see, generally speaking, stable instruments such as gold have been the classical “saviour” for investors when the market turns bearish. But that has started to change lately, and today, ETFs are considered some of the best assets to use for hedging and diversification during bad economic times.
Some ETFs are even created to increase in value when other assets decrease, meaning you could make a profit from the ongoing turmoil. Today, some of the best-performing instruments year-to-date are ETFs such as the Simplify Interest Rate Hedge ETF, which increases in value when interest rates go up.
Diversification is Always the Key
Lastly, I want to advise you from putting all your eggs in one basket, especially when investing in these uncertain times. Any successful trader or investor will tell you about the importance of diversification, so even if you want to invest and trade ETFs, you should consider adding other instruments to your portfolio.
For example, and as mentioned, gold is a go-to investment for stock investors when the markets turn, and if you manage to master the skills needed to trade forex, you could start making a quick profit even when other financial markets are collapsing.
More importantly, you need to understand that both investments and online trading carry certain risks that can not be completely avoided. Therefore, you should never invest money that you cannot afford to lose, and don’t start trading until you know what you’re doing.