Dubai offers a wealth of investment opportunities for traders, and Exchange Traded Funds (ETFs) are no exception. We’ll look at some of the key fundamentals that all traders should be aware of when trading ETFs in Dubai. We’ll also explore some of the most popular ETFs in the Emirate and discuss why they may be worth considering for your portfolio. So, if you’re looking to get started trading ETFs in Dubai, read on for more information or check out the Saxo Dubai market.
What is an ETF, and how does it work?
An ETF is a type of investment fund that trades on a stock exchange, much like shares. ETFs are a basket of assets (e.g. stocks, bonds, commodities) and can be used to track an index, sector or even a specific market. For example, the SPDR S&P 500 ETF tracks the performance of the S&P 500 Index, while the iShares Gold ETF tracks the price of gold.
When you buy an ETF, you buy a stake in all the assets that make up the fund, and it means that when you sell your ETF, you will sell all your stakes in each asset. The price of an ETF is determined by supply and demand on the stock exchange it is traded.
The benefits of investing in ETFs
There are many benefits to investing in ETFs. First, they offer a simple and cost-effective way to gain exposure to a wide range of assets. For example, you can buy an ETF that tracks the index rather than buying shares in each company that makes up the S&P 500 Index, and this saves both time and money.
Another critical benefit of ETFs is that they are very liquid, meaning they can be bought and sold quickly on the stock exchange. It is unlike other investment funds, which can be challenging to sell.
Lastly, ETFs offer a great deal of flexibility regarding portfolio construction. For example, you can use ETFs to create a portfolio heavily weighted toward a particular asset class (e.g. stocks), or you can use ETFs to build a more diversified portfolio.
The risks of investing in ETFs
As with any investment, there are risks associated with investing in ETFs. The first risk is that the value of the assets that make up the ETF can go down, which would cause the ETF’s price to fall. It is known as market risk, the leading risk associated with all investments.
Another risk to be aware of is currency risk, which is the risk that exchange rate changes will adversely affect your investment’s value. For example, if you invest in an ETF that tracks US shares but holds your investment in UAE dirhams, then a fall in the US dollar will cause your investment to lose value.
Lastly, it’s important to remember that all investments, including ETFs, can fall in value, and you may get back less than you invested.
The types of ETFs available in Dubai
Now that we’ve looked at some of the critical ETF fundamentals let’s look at the types of ETFs available in Dubai.
Broad market ETFs
As the name suggests, broad market ETFs offer exposure to a wide range of assets. The most popular broad market ETF in Dubai is the SPDR S&P 500 ETF, which tracks the performance of the S&P 500 Index. Other popular broad market ETFs include the iShares MSCI Emerging Markets ETF and the Vanguard FTSE Emerging Markets ETF.
If you’re looking for exposure to commodities, then commodity ETFs may be worth considering. The most popular commodity ETF in Dubai is the iShares Gold ETF, which tracks the price of gold. Other popular commodity ETFs include the iShares Silver ETF and the SPDR Gold Shares ETF.
If you’re looking to trade currencies, then currency ETFs may be the way to go. Currency ETFs offer exposure to a particular currency or basket of currencies. The most popular currency ETF in Dubai is the PowerShares DB USD Index Bullish Fund, which offers exposure to the US dollar. Other popular currency ETFs include the WisdomTree Japan Hedged Equity Fund and the Market Vectors Double Long Euro ETN.