Question 1

What is an ETF and how does it work?

Accepted Answer

An ETF (exchange-traded fund) is an investment fund that tracks an index, such as a stock market index, and trades on an exchange like a share. One ETF holds many assets, so buying it gives exposure to all of them in a single purchase. Its price changes with the value of the underlying assets and with market supply and demand. ETFs can focus on a specific industry, such as defence, or a specific region, such as the German stock market. You can think of an ETF as a basket of assets that share common characteristics. The value of an ETF can go down as well as up.

Question 2

What is the difference between an ETF, a stock, a mutual fund and an index fund?

Accepted Answer

The four are easy to confuse, but they work differently. Stock: a share in a single company.ETF: a fund that holds many assets, such as stocks or other instruments, and trades on an exchange throughout the day.Mutual fund: a pooled fund bought and sold at a price set once per day. It is often actively managed.Index fund: any fund that tracks an index. An ETF can be an index fund, and so can a mutual fund. Each has different costs and risks.

Question 3

What fees do ETFs have?

Accepted Answer

ETF costs fall into three main types: TER (total expense ratio): the annual fund management cost, shown as a percentage of the amount invested.Trading costs: fees charged by the platform when you buy or sell.Spread: the difference between the buy and sell price of an ETF. At Bitpanda, we do not charge regular deposit fees, commissions, overnight fees or minimum fees, which you may see with banks or other providers for stocks and ETFs. The spread, as explained above, is adjusted based on your trading amount, current market conditions and the price adjustments described in our cost transparency documents.

Question 4

What is the difference between accumulating and distributing ETFs?

Accepted Answer

Accumulating ETFs reinvest income, such as dividends, back into the fund, so the income increases the fund's value instead of being paid out. Distributing ETFs pay that income out to investors at regular intervals, for example quarterly or annually. The fund's documentation states which approach an ETF uses. Hypothetical example, not a forecast: assume an ETF generates a 5% return in a year and €1,000 was invested. With an accumulating ETF, the €50 stays in the fund and the holding is worth €1,050. With a distributing ETF, €50 is paid out and the holding stays at about €1,000.  Tax treatment depends on your personal situation and country of residence.

Question 5

How do I buy an ETF?

Accepted Answer

Buying an ETF follows general steps: choose an ETF, check its costs and risks, then place an order through a platform. Buying ETFs on Bitpanda takes four steps: Sign up to create your free account.Verify your identity with one of our verification partners.Deposit funds using one of the available payment options.Buy, sell and swap assets including ETFs .

Question 6

What is an ETF savings plan and how does it work?

Accepted Answer

6. What is an ETF savings plan and how does it work?  An ETF savings plan automatically invests a fixed amount in an ETF at regular intervals, such as monthly. You choose the ETF, amount and frequency, and each payment buys ETF units at the price at that time. Spreading purchases over time is called cost averaging, explained below. Bitpanda offers savings plans that automate recurring investments across several asset classes: ETF savings plans: a €0 buy order fee and access to ETFs from leading global providers, to diversify across markets and sectors. Set up a savings plan with Bitpanda.Stock savings plans: recurring investments in individual stocks.ETC savings plans: exposure to commodities such as gold and oil.Metals savings plans: physical gold, silver, platinum and palladium, securely stored on your behalf.Crypto Index savings plans: a diversified basket of crypto assets based on the Bitpanda Crypto Index. The value of your investment can go down as well as up.

Question 7

What is cost averaging, and does it guarantee better returns?

Accepted Answer

No. Cost averaging means investing a fixed amount at regular intervals, so you buy more units when prices are low and fewer when they are high. This can smooth your average purchase price over time. It does not guarantee better returns and does not remove the risk of loss. Learn more about the cost average effect.

Question 8

How do crypto ETFs differ from buying cryptocurrency directly?

Accepted Answer

Crypto ETFs and similar exchange-traded products provide indirect exposure without giving you direct ownership of the cryptocurrency. Buying crypto directly may let you transfer, store or stake it, while an exchange-traded product can involve management fees, tracking differences and issuer risk.

Question 9

Are ETFs suitable for beginners?

Accepted Answer

Broadly diversified ETFs can be suitable for beginners because they spread an investment across multiple holdings. However, concentrated, leveraged or inverse ETFs can be more complex and risky.

Question 10

What are the risks of ETF investing?

Accepted Answer

ETF investing carries risk, and you can lose some or all of the money you invest. The main risks are: Market risk: the value of an ETF falls when the markets it tracks fall.Loss of capital: there is no guarantee you will get back the amount invested.Tracking difference: an ETF's return can differ from the index it follows, for example because of costs.Currency risk: exchange rate changes can affect the value of ETFs holding assets in other currencies. Past performance does not predict future results.

Question 11

Do ETFs carry the same risks as buying individual stocks?

Accepted Answer

Not exactly. An ETF can reduce the effect of one company performing badly by spreading the investment across several holdings. It still carries market risk, and a narrowly focused ETF may be less diversified.

ETF Investing Hub

Learn how ETFs work and how to invest in ETFs

Your takeaways

What ETFs are and how they differ from stocks and other investments.

Ways to invest in ETFs, including one-off investments and ETF savings plans.

How different ETF types can support diversification, income or long-term investing goals.

Start with the ETF essentials

What are ETFs?

Stocks vs ETFs: differences

Plan how you want to invest

How to invest in the ETF market

ETF savings plan

What are dividend ETFs?

ETF insights from iShares by BlackRock

ETF checklist

Ready to explore ETFs?