Exchange Traded Products (ETPs) replicate the movement of a financial asset or basket of financial assets such as indexes, commodities or currencies. An ETP is an “investment vehicle” that combines the advantages of shares, in that they are traded in the continuous markets of exchanges with an investment in a group of financial assets. This characteristic has made ETPs a very popular alternative investment.
The first ETP was traded in the U.S. in 1989 and caught on very quickly despite the regulatory obstacles it faced at the start. These financial instruments have grown and now trade in a wide range of markets with an ever increasing number of suppliers.
But how do ETPs work? What are their characteristics?
- They offer investors a whole world of markets from traditional asset classes, for example bonds, through to alternatives such as commodities.
- They trade in a regulated market. ETPs trade continuously throughout the day in the same way as shares.
- There is no minimum imposed on the amount invested and no upfront repayment charges.
- They can replicate the behavior of a basket of articles such as indexes or a specific sector thereby acting as a fund.
- Their objective: to match the return of the underlying market and obtain a similar outcome.
ETPs allow you to trade with greater agility and on whole sectors, countries and countries thereby reducing capital assignment risk. Their cost is the same as that of buying or selling shares.
There are three types of ETPs:
- Exchange Traded Funds (ETF) are structured like funds and controlled under the umbrella of European Union UCITS regulators. The industry has grown a great deal.
- Exchange Traded Notes (ETN) are issued by banks and generally depend on the credit value of the issuing bank.
- Exchange Traded Commodities (ETC) are issued as debt certificates and are not limited by UCITS diversification requirements. They offer exposure to individual commodities and currency pairs as well as diversified baskets.
This is only one of the concepts dealt with in the BBVA Trader platform which has an extensive list of tutorials including an explanation of investment strategies using warrants and technical analysis identifying patterns that point to a change in trend. It also offers manuals, courses, using tools such as BBVA Trader Pro and simple guides on other types of operations. BBVA also organizes events that familiarize those interested with the trading world in a simple and clear fashion.