So You Want To Invest In Stocks Or Cryptocurrencies? Understand Traditional Finance Terms — Securities, Stock Mutual Funds, And Stock ETFs
Are you interested in investing in the stock market or in cryptocurrencies? Whether you are new to investing or a seasoned trader, it’s important to be familiar with traditional finance terms in order to gain a better understanding of how financial markets work. Many of these terms are relevant in both the stock market and the cryptocurrency market, with slight differences of course. So, without further delay, here are a few traditional finance terms you should know and why they might impact how you choose to invest.
Traditional Finance Terms
Here are the traditional finance terms you need to know.
Securities
In terms of definitions for traditional finance terms, the best place to start is with securities because it is one of the broadest and most basic financial terms. To put it simply, securities are any financial assets that can be traded. What can and can’t be considered a security depends on the jurisdiction where the assets are being traded. For example, in the U.S. securities are divided into three different categories:
- Equity securities — stocks are equity securities
- Debt securities — bonds and banknotes are debt securities
- Derivatives — options and futures are derivatives
According to this definition of securities, stocks are securities, but securities are not always stocks (because they could be bonds, banknotes, options, or futures.) Of course, this definition might not be exactly the same in other countries, so it’s important to be aware of the definitions in whatever country you happen to be trading in.
Stock Mutual Funds
Mutual funds are on the list of traditional finance terms. Mutual funds are investment strategies where you pool your money with other investors to purchase a collection of stocks, bonds, or other types of securities that might be difficult to invest in alone. In other words, it’s a way of buying into securities with more money by combining your investment with others. The price of a mutual fund is determined by dividing the total value of the securities in the portfolio by the number of the fund’s outstanding shares. This means that the price changes depending on the market. Stock mutual funds are mutual funds that invest mostly in the stocks of companies that are publicly traded on the stock exchange. Stock mutual funds are designed for long-term portfolio growth.
Mutual funds, including stock mutual funds, are designed to give investors access to portfolios that are professionally managed.
Stock ETFs
Exchange traded funds (ETFs) are investment funds that combine the diversification of mutual funds with the ease of stock trading. Basically, the best of both. Stock ETFs are traded on an exchange like a stock. They are bought and sold during the trading day vs. mutual funds, where the price is updated at the end of the trading day. Exchange traded funds adjust in price throughout the day. ETFs track particular sets of equities, similar to how indexes are used to track stocks, bonds, or other securities.
With ETFs, including stock ETFs, the provider of the fund owns the assets, designs a fund to track the performance of those assets, and then sells shares of the fund to investors.
Key Differences: Stock Mutual Funds vs. Stock ETFs
One of the main differences between stock mutual funds and stock ETFs is that ETFs often have lower fees, making them less expensive to invest in. Though mutual funds tend to be more common in the market compared to ETFs, ETFs are steadily becoming more popular over time.
When investors wish to sell a mutual fund, the manager of the fund must raise money by selling securities, which creates capital gains. Ultimately, the investors are the ones that pay the capital gains tax generated from this process.
Additionally, mutual funds are traditionally actively managed, while ETFs are mostly passively managed. Active portfolio management is focused on outperforming the market in comparison to a specific benchmark, for example, the S & P 500 Index. Passive portfolio management mimics the investment holdings of a particular index to try to achieve similar results.
Why Are These Traditional Finance Terms Important?
It’s important to know the definitions of these terms and the differences between them because this knowledge can help you determine how you would like to invest and what you would like to invest in. By understanding all of the different options, you can determine the investment strategies that you feel are best for your goals. Or you can speak with a professional investment advisor about your ideas and have an understanding of the advice that they may provide.
Also, in order to comprehend all of the different options you have for investing in the cryptocurrency market, you should be familiar with traditional finance terms because many of the same investment options are now becoming available for cryptocurrency that have been used with stocks and other securities for longer.
Cryptocurrency Mutual Funds, ETFs, and Indexes
Theoretically, cryptocurrency mutual funds, ETFs, and indexes operate the same way as stock mutual funds, stock ETFs, and stock indexes; the key difference being that instead of investing in and tracking stocks, they enable investors to invest in and track cryptocurrencies. Thankfully these investment products are becoming more readily available in the cryptocurrency market. This creates an easier on ramp for traditional investors/traders who are familiar with stock etfs/ stock mutual funds, familiar investment products tailored to the digital asset market.
Retail investors who have so far been reluctant to enter the crypto market may become interested when they are provided with the opportunity to have their portfolios professionally managed by asset management professionals. Furthermore, by providing the same investment options as are available through traditional financial institutions, companies that provide cryptocurrency mutual funds, ETFs, and indexes can offer these wealth generating financial products to people who have never had access to them before due to being excluded from the traditional financial system.
VegaX’s Investment Products For Digital Assets
One of the leaders in the effort to provide mutual funds, ETFs, and indexes to cryptocurrency investors is VegaX Holdings. Many people have hesitated to enter the crypto market due to the intense volatility of cryptocurrencies. VegaX’s products help decrease the negative impact of volatility and improve returns for investors vs. passively holding bitcoin and other digital assets
Strategies
VegaX has two main strategies. They are:
VEBE
The VegaX Enhanced Bitcoin Exposure Strategy (VEBE) allows Bitcoin holders to earn 25–50% more Bitcoin annually. By just holding Bitcoin, investors are unable to benefit from passive income but with VEBE you are able to compound your returns by earning more Bitcoin on a monthly basis. The Bitcoin returns compounding with VEBE are amongst the highest in the market and VEBE even provides a partial downside hedge for any down swings. VEBE is able to accomplish this by tracking the strategy of the VBXM, which sells out-of-the-money call options on a monthly rolling basis. We do all of the trading so you don’t have to. For more information on the strategy, download the whitepaper.
VEEE
The VegaX Enhanced Ethereum Exposure Strategy (VEEE) allows Ethereum holders to earn 25–50% more Ethereum annually. By just holding Ethereum, investors are unable to benefit from passive income but with VEEE, investors are able to compound your returns by earning more Ethereum on a monthly basis. The Ethereum returns compounding with VEEE are amongst the highest in the market and even provides a partial downside hedge for any down swings. VEEE is able to accomplish this by tracking the strategy of the VEXM, which sells out-of-the-money call options on a monthly rolling basis. We do all of the trading so you don’t have to. For more information on the strategy, download the whitepaper.
Indexes
VegaX currently has two main indexes. They are:
VBXM
The VegaX Bitcoin BuyWrite Index (VBXM or the “Index”) is an index that represents the performance of a hypothetical buy-write strategy on bitcoin. The VBXM is a total return index based on (1) buying a core physical position in bitcoin, and (2) “writing” (or selling) out-of-the-money bitcoin options. The bitcoin option written will have one month or less time remaining to expiration and be closest to 20% price without exceeding 25%. The index is calculated on the first of every month at 0:00 UTC. The calculation assumes the options are held until expiration and cash settled, at which time a new one-month, out-of-the-money call is written. For more information on the index, download the whitepaper.
VEXM
The VegaX Ethereum BuyWrite Index (VEXM or the “Index”) is an index that represents the performance of a hypothetical buy-write strategy on Ethereum. The VEXM is a total return index based on (1) buying a core physical position in Ethereum, and (2) “writing” (or selling) out-of-the-money Ethereum options. The Ethereum options written will have one month or less time remaining to expiration and be closest to 20% price without exceeding 25%. The index is calculated on the first of every month at 0:00 UTC. The calculation assumes the options are held until expiration and cash settled, at which time a new one-month, out-of-the-money call is written. For more information on the index, download the whitepaper.
More indexes will be released soon.
Now that you have an understanding of traditional finance terms, how financial products are used in the stock market and cryptocurrency market, and some strategies and indexes that are earning great returns, will you be investing any time soon?
As always, please reach out to us with questions, comments, and suggestions! info@vegaxholdings.com
VegaX Holdings: https://vegaxholdings.com/
VegaX Holdings is the “BlackRock” of the Crypto Asset Industry. We provide investors globally with one-stop access to sophisticated and secure crypto asset management. The asset management industry is the largest in the world representing more than $80 trillion dollars in investments through investment products like ETFs, mutual funds, and indices that outperform investments in individual stocks. VegaX is the first to create similar investment products for Crypto providing investors outperformance versus buying individual cryptocurrencies. On average, investors buying VegaX products make 30% more profit versus just holding Bitcoin.
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