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How to manage risks when trading ETFs in Malaysia?

Understand your investment objectives first

Before deciding to invest in anything, knowing what you want to achieve from your investments is necessary. Investment goals can be short-term or long-term, but there must be specific targets that you desire to obtain from them. Such as growing a certain amount of capital for retirement purposes or buying a house after five years means increasing your capital through investments in good time.

Control ETF proportion trades to other investment types

ETFs are generally more volatile than other financial instruments because their price movements are affected by the underlying constituents they track, which are often related to economic or political situations. It may result in more considerable losses for small-time investors, especially when they decide to trade ETFs according to short-term market predictions based on technical analysis.

Implement stop-loss orders

ETF trading involves brokerage fees whether you buy or sell them before expiry. Hence, you should set up a stop-loss order so that your ETFs will be sold once the price falls to a certain level. It will ensure that you minimise losses, especially when there are many uncertainties in the markets.

Take note of dividend payouts

Some ETFs out there offer dividends to their shareholders depending on their performance and whether they meet the preset requirements before disbursement is made. Dividends can help reduce your capital base and increase it simultaneously since these payouts supplement your income after making a profitable investment. It might make sense to hold on to such ETFs until the payout period is due for better returns.

Distribution yield as well as the total return 

ETFs have a total return that considers price changes and any income distributions to shareholders. It should be considered as a whole when deciding whether or not to purchase an ETF since additional payouts can affect your overall performance if you trade them frequently.

Ensure that the broker provides a cost-efficient ETF trading service.

Since brokerage fees are often charged for transactions that clients execute each time they buy or sell ETFs, choosing brokers that charge low commission rates are necessary to minimise costs. In cases where there is no commission involved at all – such as online stockbrokers – choosing these brokers will further reduce transaction costs and improve the returns from every trade made.

Check the minimum amount required with brokers

Not all brokers allow you to trade ETFs if there is no minimum capital available in your trading account. If this is the case, it may be better to look elsewhere and open up a position with other brokers to avoid having to deposit too much money upfront, which might later come to bite you, especially during periods of price falls.

Keep records of all transactions executed

Fund managers usually require updates about your investment portfolio every once in a while so that they can decide whether or not you should continue receiving their services, such as manager research and asset allocation advice that will help improve returns from existing investments at the same time.

Evaluate ETF performance regularly

Many online tools are available now that allow investors to compare various ETFs’ performance against one another. Therefore, it may be helpful to conduct your research and decide upon the best performing ETFs within specific market sectors before making any investments, especially when deciding upon smaller amounts of trades where mistakes are more likely to happen.

Find out about fees charged by other brokers

Some brokers these days do not charge commission on certain types of orders, such as limit orders while providing cheaper trading rates compared to others, especially when placing more significant amounts of trades at a time.

To conclude

Stocks, Commodities and ETFs are constantly changing planes, but it’s my job to help you adapt to these changes and stick with the aeroplane until it lands safely at its destination! Are you interested in ETFs? Find more info here.

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