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What Kinds of ETFs Exist?

There are many ETFs on the market and more popping up all the time.

Currently, there are over 900 ETFs available on the market, covering basically every market sector, industry, commodity, asset class, country, style of investing on the stock market. The amount of money invested in ETFs has increased exponentially over the last decade and is likely to continue in that direction.

Many more ETFs are introduced to the market every year, many with different and creative strategies that have never been available in a single investment product before. These might use Forex, rate swaps, CMOs, futures, options, short-selling, and other advanced or institutional trading strategies, to create a new kind of position in a sector, industry, or geography to which the investor wants to gain exposure.

Most people will seek out the ones with the simplest design to accomplish their goals in a cost-effective way. Suppose, for some reason, you are bullish in the semiconductor industry. There are hundreds of companies in this space.

If you have a limited amount of money, say $2,000, which you want to invest in this sector, and you need to purchase 50 companies in this sector, the allocation for each company will be about $40 ($2000/50 = $40).

But for $40, sometimes you may not be able to purchase even one share of the company, notwithstanding that you would have to complete hundreds of trades and pay commissions for each one of them.

The semiconductor ETF (SMH) is an index of semiconductor companies which consists of Intel, Texas Instruments, and others. Purchasing SMH can be a great way to gain exposure to the entire semiconductor sector without purchasing the shares of individual companies.

A popular but volatile kind of ETF is the leveraged ETF.

These offer 2x or 3x exposure in a bullish or bearish way to an index.

These positions are usually not meant to be held longer than a few days and are used by many day-traders looking for short-term hedges and speculative positions.

What’s better: ETFs or Mutual Funds?
What do ETFs invest in?

Keywords: investments, market indices, hedging, Forex, Exchange Traded Funds (ETFs), Futures, speculation, leveraged ETFs, Collateralized Mortgage Obligation (CMO), options, interest rate swaps, sector funds, 2x ETFs,