CandleFocus

Exchange Traded Product (ETP)

Exchange-traded products (ETPs) are financial instruments that are created on an exchange. These products track an underlying security, index, or financial instrument in order to diversify investors’ portfolios without the active participation of an individual stock picker.

Unlike traditional stocks, ETPs allow investors to invest in a variety of underlying assets, such as commodities and currencies. These investments are usually private, typically offered by institutional investors or large corporations, meaning that the products are often low-cost alternatives to actively-managed funds and mutual funds.

The share price of ETPs typically reflects the value of the underlying assets it comprises. The price of ETPs fluctuates from day-to-day and even intraday, in response to the movements of the underlying assets. For example, derivatives-based ETPs such as commodity ETPs, exchange-traded funds (ETFs), and exchange-traded notes (ETNs) move more quickly than those based on physical assets such as stocks and bonds. This can create favorable trading opportunities for investors, as well as provide added liquidity and cost efficiency in terms of transaction costs.

Due to the fact that ETPs can provide exposure to markets, currencies and commodities that are not easily accessible to the average investor, they provide a useful tool to diversify and manage risk. Furthermore, as they are traded on exchanges, investors have the ability to buy and sell ETPs more quickly than manually invested funds and are therefore well suited for taking advantage of quick market movements.

ETPs are a great vehicle for investors to access markets that may be out of reach, as well as for traders looking for liquid, transparent instruments. With their inherent flexibility and low cost, these products help to increase the liquidity of the markets, promoting efficient price discovery and helping to improve overall market conditions.

Glossary Index