Synthetic vs Physical ETFs

A Physical ETF invests in securities that replicate or represent the composition of the index it tracks, and a Synthetic ETF uses financial derivative instruments (such as swaps and performance-linked structured products issued by counter-parties) to track index performance. Since Synthetic ETFs invest in over-the-counter derivatives issued by counter-parties, these ETFs are exposed to the credit risk of the derivative counter-parties.



 

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