ETF

ETF Trading

ETFs, or Exchange Traded Funds are a type of investment fund that tracks underlying assets like indices, bonds, commodities and divides ownership of those assets into shares. ETFs are traded on an exchange, and their value shifts during the day, due to buying and selling actions made by the traders. As ETFs trade just the same way stocks do, they do not have their own net asset value (NAV), and they are calculated once at the close of every market day.

What is an ETF

An ETF is a collection of assets grouped together, to permit traders to trade in a few markets simultaneously. The baskets are usually combined on the basis of with a common characteristic such as energy instruments, agriculture instruments and others. If you wish to trade a stock, commodity and bonds all together you can simply trade in the ETF market.

Some ETFs track the performance of a specific nation’s equity market. Examples are the MSCI Brazil Index Fund, MSCI South Korea Index Fund and others. ETFs also make it possible to invest in certain industry sectors. Examples offered by AvaTrade are the Dow-Jones U.S. Real Estate Index Fund and the Energy Select Sector SPDR. It is important to know that all ETFs are traded as CFDs.

ETFs are traded as a basket of assets – stocks, commodities and more, put together per sector. If you speculate that the energy market, for instance, will go up, you can invest in a few trades simultaneously. A prominent advantage of ETFs is that often they balance each other out; if one instrument’s value goes down, another instrument’s value can go up and even it out. If the price of crude oil goes down, as part of the energy basket, another stock from the same basket might even it out.

Commodity ETFs have grown in popularity over the last several years with retail investors, and even institutions. This is because of the simplicity and liquidity that can be found in these markets. Remember, not all institutions will have the expertise to get involved in the futures markets, so if they choose to take advantage of a trend in a particular market, it is possible to do so with ETFs.

Let’s look at an example; if rising prices of energy are evident, what better way to enter the markets than to buy oil and natural gas, as well as have the infrastructure to do so? Also, what is easier? Buying each asset individually or buying a single ETF? This can easily be done via the XLE, which is the Energy Select Sector SPDR ETF we offer here at AvaTrade. It is clearly evident that ETFs have changed the way traders now trade the markets.

Some ETFs are inverse, meaning that they are negatively correlated with the underlying asset, such as the SPDN, which is the Daily S&P 500 Bear 1X Shares ETF. This asset is often bought and viewed as a way to short the US 500. You can also gain access to leveraged ETFs, providing investors with more capital for trading the markets.

At this point, let’s compare ETFs vs mutual funds. Both are similar in that they both represent professionally managed baskets of individual stocks or bonds. An ETF, however, is traded directly on an exchange and can be jumped in and out of quickly. This is facilitated by many of the world’s financial markets that people know and trust.

The mutual fund is different because you buy into them through a broker and not an exchange. Beyond that, the mutual fund typically has a higher minimum initial purchase associated with it, and the holdings are opaquer, as they are normally actively managed. Here, you are trusting the money manager to have the experience and knowledge to know what to do, and you don’t have your own say in the investments.

When looking at ETFs vs Index Funds, by far the most important differences are the costs and the taxation differences between the two. The ETF is typically what traders choose, but if you are looking to invest in one position for the long-term, the index fund can be a viable option. These index funds have been around for years, and they do exactly what you think they would do – offer ownership of stocks that make up an entire index, such as the S&P 500.

How to Trade ETFs with AvaTrade

Since ETFs play on the range of markets, you’ll need a broker that offers trading in all those markets with good conditions. ETFs require knowing the markets well enough to determine when to enter and when to exit, and to know how each instrument will affect the other. AvaTrade is aware of the ETFs’ special nature and helps you stay on top of the market, to use the price changes to your favour. AvaTrade offers a range of popular ETFs to trade as CFDs, giving traders the ability to trade long or short with leverage of up to .

Trading Platforms

Here at AvaTrade, you can choose from a vast selection of trading platforms. Some of them are built for manual trading, whilst others are for traders who prefer their trades to be conducted automatically. We also support the use of expert advisors for MT4 and MT5, as well as Trading Central and Guardian Angel add-ons. add-ons. Additionally, we offer AvaProtect, which is our proprietary risk management tool that protects traders from losing trades. You can open a demo account before trading to practice trading on our platforms, before doing so in the real market. Platforms available at AvaTrade – and fully compatible with Android or iPhone:

• MetaTrader 4
• MetaTrader 5
• WebTrader
• Automated Trading Platforms including Zulutrade and Duplitrade and now our AvaSocial app.

Leverage Trading

One of the most common tools used by traders is Leverage (a.k.a. Margin trading), whose purpose is to enable the trader to open positions larger than his account’s equity. AvaTrade offers you up to leverage when trading ETFs, which is the equivalent ot using only a fraction of a position’s value required in order to open it. Leverage is a common tool used worldwide, and we offer generous conditions for it

How Much Will it Cost to Trade ETFs

You can read more about the cost and benefits for our clients on the Trading Conditions & Charges page.

Educational tools available at AvaTrade

When trading any instrument, especially one as complex as ETFs, you need to keep yourself updated and informed at all time of what’s moving the markets. Naturally, AvaTrade caters to clients with education and product knowledge, and we recommend using our video tutorials and other educational tools. Let us guide you all the way, and get exposed to learning materials and market reviews that are essential for learning how to trade. Our portfolio of educational tools is vast and offers any level of trader the right tools to get started on a potential trading career.

Main ETF FAQ

• How does ETF trading work?

  Trading ETFs has become popular because it combines the ease of stock trading with the diversification found in mutual funds. They can be bought and sold in the same way as any stock, but because they mirror the composition of some index or other sector they are a useful way to capitalize on larger macro trends in the market. ETFs make it possible to speculate on the broader markets, such as the S&P 500. They can also be used in commodity trading, where using futures can be costly and require large upfront capital.
• Are ETFs good for beginners?

  Trading ETFs is a perfect way for a beginner to become familiar with the markets and to begin their trading career. This is because ETFs feature low costs, excellent liquidity, diversification, a broad choice of investments, and a low initial capital requirement. Beginners can use some of the most popular trading strategies to get started, and can focus on any industry, asset type, or market sector they like. There are even inverse ETFs that can be used to mimic shorting a stock, but with fewer risks.
• Can you make money trading ETFs?

  Because ETFs are bought and sold similarly to stocks or other asset classes they can be used to make profits. However they do not guarantee profits. A loss can be incurred from an ETF trade just as it can from any other type of trading. So it is important to understand the ETF you’re buying before investing. Some ETFs use short selling or leverage to try and generate better returns. This also increases the risks involved in trading these ETFs.

Start Trading ETFs with AvaTrade

If you enjoy focusing on several markets simultaneously, challenging yourself into making rational investments and trading on one of the most prestigious markets in the world – trading Exchange Traded Funds is exactly for you!

Not entirely sure yet? Take a look at the Avatrade Reviews by our clients!