MARKETS AND VOLATILITY - SECTION IV - CHAPTER 26 - Exchange Traded Products - ETP's

1. Exchange Traded
Products (ETP’s)
CMT LEVEL - I

2. Exchange-traded products (ETP)
•Exchange-traded products (ETP) are types of securities
that track underlying securities, an index, or other
financial instruments.
•ETPs trade on exchanges similar to stocks meaning their
prices can fluctuate from day-to-day and intraday.
•The prices of ETPs are derived from the underlying
investments that they track.
•Exchange-traded products can be benchmarked to myriad
investments including commodities, currencies, stocks,
and bonds.

3. Exchange-Traded Products vs. Mutual Funds
• Exchange-traded products were developed to create investments that
had more flexibility than mutual funds. Mutual funds are funds that are
comprised of a basket of securities that are funded by a collection of
investors and managed by professional money managers.
• Mutual funds are typically priced just once at the end of the trading day.
ETPs trade like stocks and can be bought and sold throughout the day
and have prices that move throughout the day.
• ETPs also require a brokerage account to trade, so buying and selling ETP
shares is likely to result in brokerage commission costs V/s no-load or no-
fee mutual funds, on the other hand, can be bought and sold without any
trading commission, and they do not require a brokerage account.

4. Exchange-traded Funds (ETF)
•an exchange-traded fund contains a basket of
investments that can include stocks and bonds.
•An ETF usually tracks an underlying index such as the
S&P 500 but can follow an industry, sector,
commodities, or even currency.
•An exchange-traded fund's price can rise and fall just
like other investments.
•These products trade throughout the day just as a
stock would trade..

5. Types of Exchange-traded Funds (ETF)
• Market ETFs: Designed to track a particular index like the S&P 500 or
NASDAQ
• Bond ETFs: Designed to provide exposure to virtually every type of bond
available; U.S. Treasury, corporate, municipal, international, high-yield
and several more
• Sector and industry ETFs: Designed to provide exposure to a particular
industry, such as oil, pharmaceuticals, or high technology
• Commodity ETFs: Designed to track the price of a commodity, such as
gold, oil, or corn
• Style ETFs: Designed to track an investment style or market capitalization
focus, such as large-cap value or small-cap growth

6. Types of Exchange-traded Funds (ETF)
• Foreign market ETFs: Designed to track non-U.S. markets, such as Japan’s
Nikkei Index or Hong Kong’s Hang Seng index
• Inverse ETFs: Designed to profit from a decline in the underlying market
or index
• Actively managed ETFs: Designed to outperform an index, unlike most
ETFs, which are designed to track an index
• Exchange-traded notes:In essence, debt securities backed by the
creditworthiness of the issuing bank; created to provide access to illiquid
markets and have the added benefit of generating virtually no short-term
capital gains taxes
• Alternative investment ETFs: Innovative structures, such as ETFs that
allow investors to trade volatility or gain exposure to a particular
investment strategy, such as currency carry or covered call writing