ETPs

This financial product is called an ETP.

To deal with ETPs in their entirety, I would need to write a whole other book. In this path, which aims to give you greater knowledge and awareness of financial markets and how to manage your savings, I will explain only the main aspects of ETP’s, referring you to more in-depth reading (there are many books in all languages) for a more complete knowledge of this valuable tool. Even if on a practical level, the notions you find in this path are sufficient, further reading will deepen your understanding.

I just want to specify, for those who do not know the English language well, that ETPs is the plural of ETP. The same goes for all the other acronyms you will see below.

So, what is an ETP?

An ETP, Exchange Traded Product, is a type of investment that is characterised by passively replicating a reference benchmark and being listed in real-time on a regulated market. The benchmark is a reference parameter, generally a stock exchange index (e.g., the FTSEmib, the Dax or the Dow Jones).

That ETPs adopt passive strategies means that they aim to replicate the performance of the reference benchmark, not to outperform it like an investment fund. For example, an ETP on the Nikkei index replicates the performance of the Japanese stock index. Hence, the risk-return profile will also be in line with that of the benchmark.

Within the ETPs are:

• ETFs, Exchange Traded Funds, are special investment funds that passively replicate a reference benchmark.
• ETNs, Exchange Traded Notes, are financial instruments with no maturity date that are issued by banks against direct investments by the issuer in the reference benchmark, which generally consists of an index (equity, bond or monetary), or in derivative contracts on the same benchmark.

A particular type of ETNs is constituted by ETCs, Exchange Traded Commodities, which are characterized by investing and replicating the performance of one or more commodities.

In the next sections, you will see ETFs and ETCs explained in a little more detail, albeit in a simple way, and how to use them to create your ideal investment portfolio.