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Trading Exchange Traded Funds Versus Crypto Currencies
There are dozens of ways a trader can express their view within the capital markets.
Two of the most common ways is to speculate on the direction of an ETF (exchange-traded fund), or cryptocurrencies.
Each has its own unique properties.
Cryptocurrencies are digital currencies and provide investors with an alternative to fiat currencies.
Exchange-traded funds are baskets of assets held in a trust and can provide exposure to dozens of different assets.
If you are looking to take a view of the capital markets, both assets can provide the exposure you are looking for.
What is an ETF?
An ETF or exchange-traded fund is an asset that holds one or more assets.
Usually, the administration of the ETF creates trust, that tracks the movements of the assets held by the trust.
ETFs can be stock indices, such as the S&P 500 index ETF, or bond indices, currencies, commodities, and possibly in the future cryptocurrencies.
Some ETFs track the shares in specific stock sectors.
For example, there are ETFs that track the financial or energy sectors as well as the utilities and consumer staples space.
ETFs are very liquid. Some brokers will provide contracts for differences that track the movements of ETFs.
This allows investors to use leverage to trade exchange-traded funds.
What is a Crypto Currency?
A cryptocurrency is a digital asset, that is decentralized and designed to work as a medium of exchange.
Many are created and additional units are controlled.
Cryptocurrencies use decentralized control as opposed to a central bank.
Cryptocurrencies are mined by individuals that verify each new transaction in the form of a ledger.
When Would You Trade an ETF?
You can trade an ETF to take a position on nearly every asset.
The liquidity provided by ETFs allows investors to take positions in stocks, bonds, currencies, and commodities.
Additionally, you can buy one ETF and simultaneously sell a different ETF to take a market neutral position.
For example, you can buy the financial ETF XLF and sell the technology ETF XLK, benefiting if one ETF outperforms another.
When Would you Trade Crypto Currencies?
Cryptocurrencies allow you to take a position on a digital asset that will benefit if fiat or sovereign currencies come under pressure.
Cryptocurrencies continue to become more popular to trade but the actual spending of cryptocurrencies has yet to explode.
The most effective way to trade cryptocurrencies is through contracts for differences.
This allows you to track the movements in popular cryptocurrencies such as Bitcoin, Litecoin and Ethereum.
Alternatively, you can use a digital wallet which provides you with a digital address which you can use to exchange your cryptocurrencies.
Most cryptocurrency trading is transacted versus a fiat currency such as the dollar, euro or yen. You can also trade cross cryptocurrency pairs such as Bitcoin versus Ethereum.