How do ETFs work?

Exchange traded funds (ETFs) have also developed into a popular form of investment in Germany. That’s not surprising since they kill several birds with one stone. But how exactly does this asset class work?

Basically, ETFs offer their investors the opportunity to diversify their investment broadly and invest in different markets at the same time. They are traded on stock exchanges, just like stocks. ETFs track a specific group or asset class, allowing investors to benefit from the performance of those assets without investing in them directly.

The first Bitcoin ETF is just around the corner

So it’s no wonder that the crypto industry in particular has been waiting eagerly to see whether the American Securities and Exchange Commission (SEC) will approve the first Bitcoin ETF or not. The positive decision opened the market for Bitcoin and offer many investors the chance to invest in Bitcoin without buying the cryptocurrency and holding it in wallets.

All other cryptocurrencies will probably also benefit from the positive decision.

Wide range of investments

However, this is what distinguishes the numerous planned Bitcoin Spot ETFs from conventional ETFs. These usually contain a wide range of assets. These can be stocks as well as bonds or raw materials. The ETF portfolio usually reflects an index or an investment strategy.

The ETFs are easy for investors to purchase as they are traded on stock exchanges. This offers investors flexibility in the amount and timing of purchases and sales.

Risk diversification and low costs

As if that weren’t enough, ETFs usually also offer a cheaper cost structure compared to conventional funds. This results from the connection to the structure of a stock index, which makes active management unnecessary. In addition, there is usually no issue surcharge, so investors save additional costs.

This bond also creates broad diversification. The decline in the price of individual stocks is not as noticeable because the ETF invests in countless companies. This diversity mitigates losses.

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