ETF Trading

Trade over 300 Exchange Traded Funds (ETFs) and diversify your investing across stock, index, and sector markets in a single trade.

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What is an ETF?

An Exchange-Traded Fund (ETF) is an investment fund that holds a collection of assets – like shares, bonds, or commodities – and is traded on a stock exchange just like a regular stock. An ETF is a simple way to invest in a wide range of financial assets at the same time, assisting in portfolio diversification without having to buy each asset individually. Investors can earn a return if the value of ETF investments surges or if the ETF pays a dividend.

ETFs pool together money from investors into a basket of different investments. This way, an ETF’s performance can reflect the trajectory of a part of the market. Many traders consider ETFs as one the best options for portfolio diversification. The level of diversification an ETF provides depends on the index it tracks.

Mutual funds such as The Vanguard Group, Commonwealth Funds, Morningstar, and BlackRock manage ETFs that are popular among investors in global markets. According to latest market data reports, the ETF industry grew substantially in 2024, with a record US$14.8 trillion assets under management (AUM).

A brief history of ETF trading

ETF trading began in Canada in 1990 with the launch of the Toronto Index Participation Fund, following the stock market crash of 1987, which sparked interest in flexible investment vehicles. Physicist Nate Most, working for the American Stock Exchange (AMEX), was commissioned to develop a new type of asset. He designed the structure for the first US-based Exchange Traded Fund (ETF), aiming to provide investors with a cost-effective and diversified product.

ETFs helped institutional investors execute sophisticated trading strategies more efficiently. They introduced the broader market to the benefits of pooled investing and trading flexibility. Standard & Poor's Depositary Receipts (SPDR), widely known by its ticker SPY and launched in 1993, remains the world’s most heavily traded ETF, with over US$400 billion in assets under management (AUM).

Different types of ETFs

Investor demand and technological progress have played a major role in the increase of ETFs, with the number surpassing 8,000 worldwide. ETFs have drawn the attention of investors seeking to grow their capital without engaging in time consuming asset research.

There are various types of ETFs. Some ETFs invest in a variety of stocks and bonds; others track the performance of a stock index, like the Standard and Poor’s E-Mini Index (S&P 500 E-Mini) or the E-Mini (CBOT) Dow Jones Industrial Average (DJIA), while some track the market performance (IBM Index).

Bond ETFs

Bond ETFs (commonly known as Fixed Income ETFs) are designed to provide exposure to a wide range of available bonds, including US Treasury Bonds, corporate and municipal bonds (munis), international bonds, high-yield bonds, etc.

Bond ETFs are considered lower risk investments when compared to Equity ETFs. Retail investors who are looking for income diversification and institutional investors, such as pension and hedge funds, are two groups that are likely to invest in Bond ETFs.

Commodity ETFs

Commodity ETFs track the price of a specific commodity, such as Gold (XAU), Silver (XAG), Oil (XBR, XTI), or a basket of commodities.

Institutional investors use Commodity ETFs for hedging, while retail investors invest in them, seeking exposure to commodities without trading futures or physical goods.

Physically Backed Gold ETFs

Gold ETFs are one way of investing in gold. This type of ETF holds gold bullion as its underlying asset. Gold ETFs allow investors to benefit from gold price fluctuations without having to store or insure quantities of the precious metal. Gold ETFs can be bought and sold at any time of the day, as long as stock exchanges are open. ETFs physically backed by gold typically don’t pay dividends as gold is a non-yielding asset. Investor returns can come from gold’s price appreciation.

Gold Mining ETFs

Gold Mining ETFs get you exposure to companies that mine and produce gold. Investing in gold mining is generally seen as a long-term investment.

The performance of Gold Mining ETFs depends not only on gold prices, but also on mining companies’ fundamentals, costs, growth plans, and stock market conditions.

Currency ETFs

Currency ETFs are exchange-traded funds that provide exposure to the value of a specific currency, such as the US dollar (USD); however, there are others that track multi-currency indices. Some Currency ETFs are physically backed, while others are based on derivatives like futures or swaps.

As a hedging option, a Currency ETF can help protect traders against adverse moves in forex rates.

Equity ETFs

Equity ETFs are exchange traded funds that invest in shares; they may track a specific stock index, sector or even a specific strategy. Investors use equity ETFs to gain exposure to a wide range of shares in a single trade, while they are considered ideal for individuals who would like to customise their financial plans.

Alternative Investment ETFs

Alternative Investment ETFs are innovative structures that enable traders to invest in non-traditional assets or gain exposure to investment strategies such as call writing and currency carry.

Exchange-Traded Notes (ETNs)

Exchange-Traded Notes (ETNs) are unsecured debt securities issued by creditworthy banks that track returns of underlying financial assets or indexes. ETNs typically have a set maturity date just like bonds.

Foreign Market ETFs

Foreign Market ETFs (also called International or Global ETFs) provide exposure to equities or assets in foreign countries. The most popular Foreign Market ETFs are the ones that follow foreign stock indices such as the Hang Seng, S&P/ASX 200, Nikkei etc.

Factor ETFs

Factor ETFs are based on specific characteristics (factors) related to returns, performance, and risk levels. Some of the factors are value, market cap, volatility, momentum etc. Tracking errors and factor performance cycles should be taken into consideration before investing in Factor ETFs.

Inverse ETFs

Inverse ETFs are designed to deliver the opposite of the daily return of a specific asset or index. Inverse funds may go up when the target index depreciates; for instance, when traders short-selling a stock due to stock price depreciation. Inverse ETFs allow traders to benefit from falling markets without the need to short stocks directly.

Market ETFs

Market ETFs are funds that aim to track the performance of a stock market index like the SPY.ARC (Standard & Poor’s 500), and the STW.AXW (Australia 200 Index Cash).

Specialty ETFs

Specialty ETFs are funds that target specific market segments that may not fit traditional sector classifications. For example, in recent years, Specialty ETFs have provided exposure to the Artificial Intelligence (AI), cybersecurity, and clean energy industries to name a few.

Actively Managed ETFs

Actively Managed ETFs are overseen by portfolio managers who select assets and adjust positions to achieve a specific target. Depending on the goal, actively managed ETFs can invest in a mix of different assets.

Leveraged ETFs

A Leveraged ETF’s target is to amplify the daily return of the underlying asset, whether it is an index, sector or any other financial instrument. Derivatives like swaps and futures are used to multiply gains.

Sector and Industry ETFs

Sector and Industry ETFs are designed to provide exposure to particular industries, such as oil, pharmaceutical, and tech companies, etc.

Style ETFs

Style ETFs focus on investment styles like value or growth, regardless of market capitalisation (large-cap, medium-cap, small-cap).

Sustainable ETFs

Sustainable ETF (also called ESG ETFs) trading involves investing in firms that are in line with specific environmental, social and governance (ESG) criteria.

ESG ETFs favour companies applying sustainability practices, while underweighting business sectors such as energy or defence.

How does ETF trading work?

An ETF (exchange-traded fund) is a type of investment fund traders buy or sell through a brokerage firm on the stock exchange. In ETF investing, traders do not have to acquire the underlying investment product physically. ETFs are popular financial instruments combining the diversification benefits of mutual funds with the trading flexibility of stocks. ETFs pull together capital from both long-term investors and short-term traders into a basket of various investments, including stocks, bonds, and other security assets.

ETFs work in a similar way to stock trading. ETF issuers, such as financial institutions or fund managers, create funds to track the underlying assets’ performance and sell shares to investors participating in the fund. Thus, shareholders own a percentage of the ETF and not the underlying asset included in the fund.

However, unlike a company stock, the number of outstanding shares of an ETF can change daily due to the constant creation of new shares and the redemption of existing shares through a creation/redemption process by authorised participants.

ETF issuers create baskets of underlying securities, including commodities, bonds, currencies, and stocks, under a unique ticker symbol and intraday price data. ETF market prices generally stay close to the underlying assets’ value. Financial institutions use the arbitrage mechanism to control any unexpected price fluctuations; in the case of ETF market price, deviations from the underlying asset value. ETFs are usually offered at lower fees than other types of funds, while some investors suggest that they are easier to trade when compared to other assets.

How to trade ETFs?

Dollar-Cost Averaging

Basic strategy.
Buying a set fixed-dollar amount of an asset on a regular schedule.
Appropriate for beginner investors.
Suited for people who can set aside a small portion of their salary each month.
Alternative to investing in a low-interest saving account.
Dollar-Cost Averaging imparts discipline to the savings process. You can pay yourself first, which you achieve by saving regularly.
Accumulate more units when the ETF price is low and fewer units when the ETF price is high, thus averaging out the cost of holdings.

Asset Allocation

Allocating a portion of a portfolio to different asset categories for diversification.
Some ETFs can be purchased with a small initial investment, making them accessible to new investors.
Suited for beginners starting out, depending on investment horizon and risk tolerance.

Swing Trading

Aims to gain from price swings in ETFs over a few days to a few weeks.
Helps in portfolio diversification.
Some ETFs have tight bid/ask spreads, making them suitable for short-term trading.
Suitable for technical inclined traders who use technical analysis to identify entry and exit points in trades.

Sector Rotation

Focusses on different sectors of the economy.
Traders rotate into sectors expected to outperform and exit the ones underperforming.
Risk management tool.

For example, an investor holding a Gold ETF (e.g.,SPDR Gold Shares ETF; ticker GLD) may sell it after a strong performance and rotate into a Technology ETF (e.g., XLK) if they anticipate growth in the tech sector.

Physically Backed ETF

ETFs are backed by a tangible asset like gold bullion or other commodities.
Gold ETFs can be used as a hedge against inflation, US dollar depreciation or stock market volatility.
Price movements follow spot market fluctuations.
Offers exposure to metals and commodities without needing to store them.

Betting on Seasonal Trends

Traders use historical data to identify time periods where certain instruments tend to outperform or underperform.

Instead of buying individual stocks or commodities, traders can use ETFs to gain exposure to financial sectors or assets affected by seasonal patterns.

Hedging

Traders often invest in ETFs to hedge and protect other positions against downside risks.

ETF trading example

Suppose you want to trade CFDs on ETFs, where the underlying asset is the iShares Core US Aggregate Bond (AGG.ARC) and your account is in USD.

AGG.ARC is trading at: Bid 106 and Ask 107.

You decide to trade 100 units of AGG.ARC because you think that the price of AGG.ARC ETF is going to rise in the future. The margin on AGG.ARC is 20%; this means that you are required to put up 20% of the position value in order to take up your desired position in AGG.ARC.

ETF trading example

Hence you would need at least the following amount in your account to take up the position:
20% x (100 x 107) = $2140
This in turn will give your position a value of $10700

ETF trading example

In the next hour, the price of AGG.ARC. has moved to: Bid 110 and Ask 111
You now have a profitable trade. You could close your position by selling at the current price of $110. As such your profit would be:
100 x (110 - 107) = $300

ETF trading example

Hence you would need at least the following amount in your account to take up the position:
20% x (100 x 107) = $2140
This in turn will give your position a value of $10700

How to start trading ETF CFDs with FP Markets?

Start trading ETFs in 9 simple steps:

Open a trading account with FP Markets.
Improve your trading knowledge using the comprehensive educational suite provided by FP Markets.
Put your trading skills into practice on the Demo account without exposing your capital to risks.
Do in-depth research about the ETFs you want to invest in and follow their market performance.
Make a trading plan and decide which ETF suits your financial plan.
Use your Live trading account to place your trade and monitor your position closely.
Diversify your investment portfolio to protect your open position from related trading risks.
Once you reach your goal, close your position.
Analyse your performance and risks before proceeding with your next trade.

ETF list

SEARCH BY SYMBOL

Symbol	Description	Contract Size	Leverage
ACWI	iShares MSCI ACWI ETF (ACWI.xnms)	1	1:5
AGG	iShares Core U.S. Aggregate Bond ETF (AGG.arcx)	1	1:5
BIL	SPDR Bloomberg 1-3 Month T-Bill ETF (BIL.arcx)	1	1:5
BND	Vanguard Total Bond Market ETF (BND.xnms)	1	1:5
BSV	Vanguard Short-Term Bond ETF (BSV.arcx)	1	1:5
DIA	SPDR DJIA ETF (DIA.arcx)	1	1:5
EEM	iShares MSCI Emerging Markets ETF (EEM.arcx)	1	1:5
EFA	iShares MSCI EAFE ETF (EFA.arcx)	1	1:5
GLD	SPDR Gold Shares ETF (GLD.arcx)	1	1:5
HYG	iShares iBoxx High Yield Corp Bond ETF (HYG.arcx)	1	1:5
ICLN	iShares Global Clean Energy ETF (ICLN.xnms)	1	1:5
IEI	iShares 3-7 Year Treasury Bond ETF (IEI.xnms)	1	1:5
IEMG	iShares Core MSCI Emerging Mkts ETF (IEMG.arcx)	1	1:5
IJH	iShares Core S&P Mid-Cap ETF (IJH.arcx)	1	1:5
IJR	iShares Core S&P Small-Cap ETF (IJR.arcx)	1	1:5
ITOT	iShares Core S&P Total US Stocks ETF (ITOT.arcx)	1	1:5
IVV	iShares Core S&P 500 ETF (IVV.arcx)	1	1:5
IVW	iShares S&P 500 Growth ETF (IVW.arcx)	1	1:5
IWD	iShares Russell 1000 Value ETF (IWD.arcx)	1	1:5
IWF	iShares Russell 1000 Growth ETF (IWF.arcx)	1	1:5
IWM	iShares Russell 2000 ETF (IWM.arcx)	1	1:5
LQD	iShares iBoxx IG Corp Bond ETF (LQD.arcx)	1	1:5
QQQ	Invesco QQQ Trust Series 1 ETF (QQQ.xnms)	1	1:5
SHV	iShares Short Treasury Bond ETF (SHV.xnms)	1	1:5
SHY	iShares 1-3 Year Treasury Bond ETF (SHY.xnms)	1	1:5
SPY	SPDR S&P 500 ETF (SPY.arcx)	1	1:5
SUSL	iShares ESG MSCI USA Leaders ETF (SUSL.xnms)	1	1:5
TIP	iShares TIPS Bond ETF (TIP.arcx)	1	1:5
TLT	iShares 20+ Year Treasury Bond ETF (TLT.xnms)	1	1:5
TQQQ	ProShares UltraPro QQQ ETF (TQQQ.xnms)	1	1:5
VB	Vanguard Small-Cap ETF (VB.arcx)	1	1:5
VCIT	Vanguard Intermediate-Term Corporate ETF (VCIT.xnms)	1	1:5
VCSH	Vanguard Short-Term Corp Bond ETF (VCSH.xnms)	1	1:5
VEA	Vanguard FTSE Developed Mkts ETF (VEA.arcx)	1	1:5
VGT	Vanguard Info Tech ETF (VGT.arcx)	1	1:5
VIG	Vanguard Dividend Appreciation ETF (VIG.arcx)	1	1:5
VNQ	Vanguard Real Estate ETF (VNQ.arcx)	1	1:5
VO	Vanguard Mid-Cap ETF (VO.arcx)	1	1:5
VOO	Vanguard S&P 500 ETF (VOO.arcx)	1	1:5
VTI	Vanguard Total Stock Mkt ETF (VTI.arcx)	1	1:5
VTV	Vanguard Value ETF (VTV.arcx)	1	1:5
VWO	Vanguard FTSE Emerging Mkts ETF (VWO.arcx)	1	1:5
VXUS	Vanguard Total International Stock ETF (VXUS.xnms)	1	1:5
VYM	Vanguard High Dividend Yield ETF (VYM.arcx)	1	1:5
XLF	Financial Select Sector SPDR ETF (XLF.arcx)	1	1:5
XLK	Technology Select Sector SPDR ETF (XLK.arcx)	1	1:5

ETF Trading - FAQs

What is an ETF?

An ETF (Exchange-Traded Fund) is a type of investment fund that is traded on a stock exchange. ETFs are passive or, sometimes, active investment products that track the performance of underlying financial assets.

In ETF investing, investors own units of the fund, so they do not have to acquire the investment product physically. ETFs are popular financial instruments combining the diversification advantages of mutual funds with the flexibility of shares. ETFs pull together capital from investors into a basket of various investments, including stocks, bonds, and other asset classes.

How to trade ETFs?

ETF trading could be an effective way to access financial markets. There are several ETF trading strategies investors and traders can use since ETFs provide exposure to different asset classes and industry sectors. Traders should have a well-prepared financial plan and carefully select the ETFs they want to invest in.

ETFs allow traders to implement various strategies to seize market opportunities, protect other investments, or diversify their portfolios. ETFs can be traded in many ways, using volatility-based strategies, investing during the year via seasonal trading taking into consideration supply and demand, sector rotation and inverse ETFs to name a few.

Is ETF trading easy?

ETF trading is often considered a beginner-friendly way to get access to various financial markets. Traders using ETFs hedge against market risks, gain exposure to specific market segments, and diversify their portfolios. However, investors should research ETF performance, structure, and fees before deciding if they would be the best instruments to help them achieve their financial goals.

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ETF Trading

What is an ETF?

A brief history of ETF trading

Different types of ETFs

Bond ETFs

Commodity ETFs

Physically Backed Gold ETFs

Gold Mining ETFs

Currency ETFs

Equity ETFs

Alternative Investment ETFs

Exchange-Traded Notes (ETNs)

Foreign Market ETFs

Factor ETFs

Inverse ETFs

Market ETFs

Specialty ETFs

Actively Managed ETFs

Leveraged ETFs

Sector and Industry ETFs

Style ETFs

Sustainable ETFs

How does ETF trading work?

How to trade ETFs?

Dollar-Cost Averaging

Asset Allocation

Swing Trading

Sector Rotation

Physically Backed ETF

Betting on Seasonal Trends

Hedging

How to start trading ETF CFDs with FP Markets?

ETF list

ETF Trading - FAQs

What is an ETF?

How to trade ETFs?

Is ETF trading easy?

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