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What you need to know before investing in ETFs

Apr 24, 2024 | Follow the Money

Sometimes, choosing between different ETFs can be overwhelming, especially when you are considering replicating the same stock market index. How can you be sure you are making the best decision for your investment needs? How do you know which one is right  for you? HeyTrade provides some key points to consider when choosing the best ETF for your goals. 

  • Expense Ratio.

This is the annual cost charged to investors to manage the ETF. It is important because it can directly affect your long-term returns. For example, an ETF with an expense ratio of 0.05% means that for every 10,000 € invested, you would pay 5€ a year in management fees.

  • Trading Volume.

Trading volume refers to the number of shares of an ETF that are bought and sold in a given period of time. An ETF with a high trading volume generally has tighter spreads. That is, the difference between the bid and ask price is smaller.

  • Fund size.

An ETF with a larger fund size is usually more liquid, so it is easier to buy and sell large amounts of shares without significantly affecting their price. In addition, a large fund size may indicate that the ETF has a very stable investor base. 

  • Index replication.

Some ETFs use a sampling strategy, which means that they do not hold all the stocks in the index, but a representative selection. Others may use derivatives or financial instruments to track.

Make sure you understand how the ETF tracks the index and if there is any difference in expected performance.

  • Dividends and reinvestment.

If you are interested in ETFs that pay dividends, there are two types of exchange traded funds

    • Accumulating ETFs, which automatically reinvest the income in the fund itself.
    • Distributing ETFs,  which distribute them periodically to investors.
  • Active vs. Passive ETF.

Within the world of ETFs, there is an important distinction between active and passive management approaches.

Active ETFs are those in which a team of managers makes decisions about which assets to include in the fund and when to buy or sell them. This approach is based on trying to outperform a benchmark index.  Passive ETFs, on the other hand, stay in line with the composition of the index, with minimal changes over time.

  • Fund manager reputation.

The reputation and history of the ETF manager is important. A reputable one such as Vanguard or Blackrock have years of experience and offer a wide range of products, tailored to different investment and risk profiles.

At HeyTrade you can find more than 300 ETFs to invest in. In addition, we have a selection of 25 free ETFs such as Vanguard S&P500 UCITS ETF USD or iShares NASDAQ 100 UCITS ETF EUR Hedged.

If you have any questions, please do not hesitate to contact us at We will be happy to help you.

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