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  • Writer's pictureIshfaaq Peerally

How Futures ETFs Work

Why the USO oil ETF $USO does not follow oil prices $OIL ? Why the Bitcoin ETF BITO does not follow Bitcoin prices $BTC ?

Why does the gold ETF GLD $GLD follow Gold prices $GOLD ? Why does the SPY ETF follow the S&P 500 $SPX500 ?

There are clearly two types of ETFs. One is the spot ETF and the other Futures ETF.

An ETF will normally follow an index. For example, the SPY ETF follows the S&P 500 index. Every day, the ETF will be adjusted by creating or retiring shares in order to match the index.

Futures ETFs are backed not by real assets but by futures contracts. Futures are more volatiles and there needs to be a constant rollover. That's why there are these spreads.

I'm not going to tell you which type of ETF you should buy but just make sure you know what you are really buying.

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