top of page

What are the risks associated with investing in ETFs?

Curious about ETFs

What are the risks associated with investing in ETFs?

Like any investment, ETFs carry some degree of risk, and it is important for investors to be aware of the risks before investing in them. Here are some of the risks associated with investing in ETFs:

1. Market risk: ETFs are subject to market risk just like any other investment. The value of an ETF can rise or fall based on changes in the value of the underlying securities it holds.

2. Liquidity risk: Some ETFs may not be very liquid, which means it can be difficult to buy or sell them quickly without affecting their market price.

3. Tracking error risk: ETFs are designed to track the performance of an underlying index or asset class. However, there can be a difference between the performance of the ETF and the index it is designed to track. This is known as tracking error.

4. Concentration risk: Some ETFs may be highly concentrated in a particular sector, industry or geographic region, which can increase their risk.

5. Currency risk: If an ETF holds securities denominated in a foreign currency, changes in exchange rates can affect the value of the ETF.

6. Counterparty risk: Some ETFs use derivatives to gain exposure to certain markets or asset classes. This introduces counterparty risk, which is the risk that the counterparty to the derivative contract may default on their obligations.

It is important for investors to do their own research and understand the risks associated with any investment, including ETFs.

bottom of page