What’s the difference between ETF Investing and Algorithmic Investing?

Undoubtedly, investing holds great significance in one’s life for making the money work. It is one of the best ways to increase the value of your assets with time. Nowadays, you have the choice of investing in a variety of things such as small businesses, bonds, mutual funds, ETFs, stocks, etc. When you take investments seriously, your return on investments can give you a promising financial future.

Now, let’s have a look at the growing investing techniques i.e. ETF investing and Algorithmic investing.

ETF Investing

What is an ETF?

ETF stands for Exchange Traded Fund. In this type of investment, a commodity, sector, index, or other assets are traced that can be sold or bought on a stock exchange in the same way as a regular stock. A never-ending surge has been observed in its fame since the time it was introduced.

Why consider ETF Investing?   

ETF investing brings a variety of benefits with itself. Given below is the answer to this question:

  • Lower Expense Ratios:

Passively managed ETFs have lesser expense ratios in comparison to the ones managed actively.

  • Tax Efficiency:

The majority of the ETFs are not managed actively and follow a particular index, and for this reason, they might not possess greater capital gains and income that are needed to be transferred to the proprietor annually. It implies that investors have full control over when they incur taxes.

  • Diversification:

A single ETF can bring you closer to a variety of market segments, equities, and styles. As mentioned earlier, ETF can trace a good variety of stocks, and even imitate the returns of a group of countries.

  • Small Amount Purchase:

ETFs can be traded like stocks, and hence this is beneficial for position sizing. Investors take one small position in a specific ETF or can purchase small positions for scaling in and out of a position.

Algorithmic Investing

What is Algorithmic Investing?

Algorithmic investing or Algo-trading refers to the process of executing orders with the help of a pre-defined and automated set of instructions for placing a trade. Algorithmic investing employs complicated formulas along with human supervision and mathematical models for making decisions, selling, or purchasing financial security on an exchange. The algorithms depend upon price, timing, and quantity, ruling out the effect of human emotions on investment activities. In this way, the computer program will keep track of stock price, and place a trade when the defined requirements are fulfilled.

Why Algorithmic Investing?

Algorithmic investing has a variety of benefits, and here is why you should give it a shot:

  • Preciseness:

The algos are double-checked for ensuring that trades are placed perfectly. It eliminates poor decision-making due to human error and removes the shortcoming of the model if any.

  • Risk Management:

The risks are monitored continuously by the algorithms, and then hedge a position in the market accordingly.

  • Speed:

The algorithms place a trade in a fraction of seconds, opening a door of opportunities.

Well, both these investing types are important in their own way. We cannot consider any one of them as the best one since it all depends on your requirements. Don’t forget to give them a shot!

To get started head to our ETF Investments section.

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