{"id":175895,"date":"2020-09-30T15:37:00","date_gmt":"2020-09-30T19:37:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/benefits-risks-of-etps\/"},"modified":"2023-04-26T15:56:07","modified_gmt":"2023-04-26T19:56:07","slug":"benefits-risks-of-etps","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/benefits-risks-of-etps\/","title":{"rendered":"Benefits &#038; Risks of ETPs"},"content":{"rendered":"<h3>Benefits &amp; Risks of ETPs<\/h3>\n<p>Before deciding if exchange-traded products (ETPs) are the right type of investment for your portfolio, you should explore the facts.<\/p>\n<h4>Benefits<\/h4>\n<p>Some of the benefits of using ETPs include:<\/p>\n<ul>\n<li>Flexibility<\/li>\n<\/ul>\n<p>ETPs are flexible. They can provide access to an entire index, or alternative asset classes, with a single trade.<\/p>\n<ul>\n<li>Accessibility<\/li>\n<\/ul>\n<p>ETPs are accessible and can be bought and sold whenever the stock exchange is open.<\/p>\n<ul>\n<li>Affordability<\/li>\n<\/ul>\n<p>The relatively low costs associated with managing ETPs, compared to other investments, make them a cost-effective way for investors to gain access to a wide range of asset classes.<\/p>\n<ul>\n<li>Transparency<\/li>\n<\/ul>\n<p>ETPs are transparent. ETP constituents are published on a daily basis, making it easier for investors to see exactly what they own.<\/p>\n<ul>\n<li>Simplicity<\/li>\n<\/ul>\n<p>ETPs are simple. They are listed on an exchange and traded in a similar way as shares.<\/p>\n<h4>Risks<\/h4>\n<p>But as with all investments, there are risks. It is important to distinguish what risks an ETP is subject to before making an investment.<\/p>\n<h5>Market Risk<\/h5>\n<p>The objective of ETPs is to replicate the performance of an underlying benchmark minus fees. They are therefore exposed to market risks driven by price movements in the underlying.<\/p>\n<ul>\n<li>Costs<\/li>\n<\/ul>\n<p>All ETPs incur costs, whether ongoing charges \u2013 a measure of recurring costs in an ETP, which represent the cost of managing a product, also referred to as the Total Expense Ratio.<\/p>\n<p>Portfolio transaction costs, which include variable fees associated with the buying and selling of securities in an ETP by the ETP issuer. And trading and post-trading costs incurred by the end investor when trading an ETP.<\/p>\n<ul>\n<li>Tracking Difference<\/li>\n<\/ul>\n<p>The structure and cost of an ETP means it may not track its underlying exactly. This is referred to as tracking difference.<\/p>\n<ul>\n<li>Tax Considerations<\/li>\n<\/ul>\n<p>And as with all investments, ETPs will usually incur some form of taxation. Investors should therefore consider obtaining independent tax advice before investing in ETPs.<\/p>\n<ul>\n<li>FX Risk<\/li>\n<\/ul>\n<p>Plus, any investment based in a non-local currency will be affected by exchange rate fluctuations. Currency hedged ETPs can mitigate this risk, providing exposure to the underlying without an additional currency risk.<\/p>\n<p>For more information, please visit:<\/p>\n<ul>\n<li><a href=\"https:\/\/www.wisdomtree.eu\/en-gb\/resource-library\/etpedia\" target=\"_blank\" rel=\"noopener\">WisdomTree \u2013 ETPedia (Educational Guide to ETPs)<\/a><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>This lesson highlights some of the opportunities and risks presented by ETPs.<\/p>\n","protected":false},"author":850,"featured_media":221437,"parent":0,"comment_status":"open","ping_status":"open","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[13714],"traders-academy":[13125,13128,13132],"class_list":{"0":"post-175895","1":"trading-lessons","2":"type-trading-lessons","3":"status-publish","4":"has-post-thumbnail","6":"contributors-categories-wisdomtree-europe","7":"traders-academy-beginner-trading","8":"traders-academy-level","9":"traders-academy-trading-lesson"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.9 (Yoast SEO v27.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Archives | Traders&#039; Academy | IBKR Campus<\/title>\n<meta name=\"description\" content=\"This lesson highlights some of the opportunities and risks presented by ETPs.\" 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