ETFs (Exchange Traded Funds)

ETF stands for Exchange Traded Fund, and it is a basket of securities packed together in a single instrument that can be bought and sold on the traditional stock market.

An ETF is a financial instrument which combines some of the attributes of a stock and some attributes of a mutual fund. So buying an ETF gives the trader the advantages that can be obtained from both stock and mutual fund investing.

ETFs provide a lot of flexibility in terms of investing options. Picture a scenario where a trader wishes to invest his money in several markets, but is constrained by not having the financial requirements for each individual market investment or he/she simply does not want to have to endure the cumbersome processes such as paperwork and tracking each investment individually. Perhaps, a trader may even want to participate in possible bullish markets abroad and does not know how to go about investing money in another country. By purchasing an ETF that contains assets in several asset classes, or combines local and foreign investment vehicles, a trader can get all the exposure he wants in several potentially profitable opportunities.

Traders can trade ETFs on the stock markets just the way stocks are traded. For instance, the Nasdaq has a basket of ETFs that traders can buy and sell. Typically, the asset composition of each ETF is fixed in various proportions, and priced according to the demand and supply dynamics that operate in the financial markets. Traders can now look at the composition of each ETF to decide if they meet their investment needs, and then purchase the number of units that they want at the market price. The price of the ETF changes on a day to day basis as trading is performed on it, and traders can go long or short-sell the ETF as they wish.

Best ETF Brokers UK

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    AvaTrade is a leading forex and CFD broker, established in 2006 and regulated across 9 jurisdictions. Over 400,000 users have signed up with the broker which processes over 2 million trades each month. The firm offers multiple trading platforms, including MT4, MT5, and a proprietary WebTrader. 1250+ financial instruments are available for trading, from CFDs to AvaOptions and now AvaFutures, alongside a comprehensive education center and multilingual customer support.

  2. XTB

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    Founded in 2002 in Poland, XTB now serves more than 935,000 clients. The forex and CFD broker combines a heavily regulated trading environment with an extensive selection of 5,600+ assets and a commitment to trader satisfaction, featuring an intuitive in-house platform with superb tools to support aspiring traders.

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    Established in 1989, CMC Markets is a respected broker listed on the London Stock Exchange and authorized by several tier-one regulators, including the FCA, ASIC and CIRO. More than 1 million traders from around the world have signed up with the multi-award winning brokerage.

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    Spreadex is an FCA-regulated broker that offers spread betting opportunities on an impressive 10,000+ CFD instruments including 60 forex pairs. Traders can also take short-term positions on sporting events. The brand has been around for over 20 years and has won multiple awards.

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    IC Markets is a globally recognized forex and CFD broker known for its excellent pricing, comprehensive range of trading instruments, and premium trading technology. Founded in 2007 and headquartered in Australia, the brokerage is regulated by the ASIC, CySEC and FSA, and has attracted more than 180,000 clients from over 200 countries.

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    Established in Australia in 2010, Pepperstone is a top-rated forex and CFD broker with over 400,000 clients worldwide. It offers access to 1,300+ instruments on leading platforms MT4, MT5, cTrader and TradingView, maintaining low, transparent fees. Pepperstone is also regulated by trusted authorities like the FCA, ASIC, and CySEC, ensuring a secure environment for traders at all levels.

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    Interactive Brokers (IBKR) is a premier brokerage, providing access to 150 markets in 33 countries, along with a suite of comprehensive investment services. With over 40 years of experience, this Nasdaq-listed firm adheres to stringent regulations by the SEC, FCA, CIRO, and SFC, amongst others, and is one of the most trusted brokers for trading around the globe.

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    RoboForex is an online broker, established in 2009 and registered with the IFSC in Belize. Traders can choose from five accounts (Prime, ECN, R StocksTrader, ProCent, Pro) catering to different needs with trades from 0.01 lots and spreads from 0 pips. RoboForex has also enhanced its offering over the years, adding CFD instruments and launching its stock trading platform, plus the CopyFX system.

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    eToro is a top-rated multi-asset platform which offers trading services in thousands of CFDs, stocks and cryptoassets. Launched in 2007, the brand has millions of active traders globally and is authorized by tier one regulators, including the FCA and CySEC. The brand is particularly popular for its comprehensive social trading platform. Cryptoasset investing is highly volatile and unregulated in the UK and some EU countries. No consumer protection. Tax on profits may apply. 51% of retail CFD accounts lose money.

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    InstaForex is a forex and CFD broker founded in 2007. The broker offers diverse market coverage to millions of clients, spanning traditional assets like currencies and shares, as well as other interesting opportunities such as IPOs.

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    Interactive Investor are a hugely respected, FCA-regulated investing firm. The trading platform is easy-to-use while the sign-up and deposit process is straightforward for new investors. ii also has a long track record and a string of industry awards under its belt.

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    Founded in 1974, IG is part of IG Group Holdings Plc, a publicly traded (LSE: IGG) brokerage. The brand offers spread betting, CFD and forex trading across an almost unrivalled selection of 17,000+ markets, with a range of user-friendly platforms and investing apps. For 50 years, IG has maintained its position as an industry leader, excelling in all key areas for traders.

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    Founded in 2009, Vantage offers trading on 1000+ short-term CFD products to over 900,000 clients. You can trade Forex CFDs from 0.0 pips on the RAW account through TradingView, MT4 or MT5. Vantage is ASIC-regulated and client funds are segregated. Copy traders will also appreciate the range of social trading tools.

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    Established in 2008 and headquartered in Israel, Plus500 is a prominent brokerage that boasts over 25 million registered traders in over 50 countries. Specializing in CFD trading, the company offers an intuitive, proprietary platform and mobile app. It maintains competitive spreads and does not charge commissions or deposit or withdrawal fees. Plus500 also continues to shine as one of the most trusted brokers with licenses from reputable regulators, including the FCA, ASIC and CySEC.

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    GO Markets is an established forex and CFD broker with multiple industry awards and accolades. The ECN/STP broker is popular with budding traders, offering competitive accounts in multiple base currencies and a range of flexible payment methods. With top-tier regulation from CySEC and ASIC, GO Markets is a trusted broker.

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    Markets.com is a respected broker, offering multi-asset trading opportunities through CFDs or spread betting (UK only). Established in 2008, the brand has an impressive 4.3 million registered customers and is overseen by trusted regulators, including the FCA, ASIC and CySEC. 79.1% of retail accounts lose money.

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    Founded in 2015, VT Markets maintains its position as a top Australian multi-asset CFD broker. With 1000+ tradeable instruments and support for the MetaTrader 4 and MetaTrader 5 platforms, this broker delivers a wide range of trading opportunities to over 200,000 clients worldwide. VT Markets is regulated by the ASIC, FSCA, and SVGFSA.

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    Webull is a multi-regulated trading app that offers stocks, options, forex, cryptos, ETFs, fractional shares and more. The firm is authorized by the SEC, FINRA and FCA and continues to uphold a strong trust rating. Low fees, no minimum investment and generous welcome bonuses have made the discount broker popular with online investors.

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    Trade.com is a trustworthy online broker with a global presence. The broker offers 2,100+ CFDs in major markets, as well as futures, options and more. The broker offers best-in-class platforms and superior analysis tools for experienced traders. The broker is also regulated by top-tier authorities including the FCA and CySEC.

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    Grand Capital is a MetaTrader broker with welcome bonuses, trading competitions and an intuitive copy trading service. Several account types and 400+ assets provide trading opportunities for various types of investors and strategies. New users can also open an account and start trading in a matter of minutes.

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    Ingot Brokers is a multi-regulated brokerage established in 2006. The broker offers CFD trading opportunities on 1000+ instruments including forex, stocks, indices, commodities and cryptocurrencies. The broker supports the MetaTrader 4 and MetaTrader 5 platforms and offers both raw spreads and commission-free account options.

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    Scope Markets offers trading and investing in multiple spot and CFD instruments. The group of brokers is regulated in several locations, including Belize, Kenya and South Africa. Users get competitive trading conditions, a range of payment methods, strong support and can get started in a few straightforward steps.

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    Dukascopy is an online broker operated by a Swiss-regulated banking group. It offers a good selection of 500+ markets, with forex, stocks, gold, ETFs, indices, bonds and cryptocurrencies available. It also offers flexible trading opportunities through the choice of CFDs or binary options. Traders will use MetaTrader 4 or a proprietary platform that is well-suited to automated trading.

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    RockGlobal is a New Zealand based and regulated CFD broker. They offer competitive spreads from 0.1 pips and a large range of trading assets, trading platforms and educational services, with up to 1:500 leverage. Operating in a Tier 1 regulated environment, RockGlobal offers peace of mind and excellent customer support.

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    Firstrade is a US-headquartered discount broker-dealer with authorization from the SEC. The company is also a member of FINRA/SIPC. With welcome bonuses, powerful tools and apps, plus commission-free trading, Firstrade Securities is a popular online brokerage. It is also quick and easy to open a new account.

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    Switch Markets is a multi-asset CFD brokerage, regulated by ASIC and SVGFSA. The new brand offers trading on the MT4 and MT5 platforms and leverage up to 1:500. The broker boasts over 2000+ instruments, with some additional tools including copy trading services and free VPS hosting.

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    Kucoin is a crypto exchange that offers trading on 1000+ tokens as well as leveraged trading opportunities via futures and perpetual swaps. This exchange has a slick trading platform that supports robots, allowing traders to implement automated strategies. Other attractive features include a demo account, flexible funding methods and DeFi features like staking and mining.

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    Pacific Union Prime is an FSCA and offshore-regulated multi-asset broker offering competitive fees and direct market access on forex, commodities, stocks, bonds and indices. The broker supports the popular MetaTrader 4 and MetaTrader 5 platforms and a proprietary mobile app. Fees vary by account type with no commission and spreads from 1.9 pips on the Standard account and $7 commission per lot and spreads from 0.4 pips on the Prime account.

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    ActivTrades is a UK-headquartered CFD and forex broker established in 2001. The brokerage is heavily regulated with licenses from the FCA, SCB, CSSF, BACEN & CVM and CMVM. Over 1000 CFDs are available spanning 7 asset classes. Over 93.60% of orders are executed at the requested price. ActivTraders also offers a selection of leading trading platforms, including MT4, MT5, TradingView and ActivTrader platforms.

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    Swissquote is a Switzerland-based bank and broker that offers online trading and investing. The company has a high safety score and is listed on the Swiss stock exchange. The firm offers a huge range of products, from stocks, ETFs, bonds and futures to 400+ forex and CFD assets. Hundreds of thousands of traders have opened an account with the multi-regulated brokerage. Clients can get started in three easy steps while 24/7 customer support is available to assist new users.

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    Fortrade is a multi-asset, multi-regulated broker with branches regulated by the FCA, CySEC and ASIC among others. The brand offers trading opportunities on a wide range of instruments including stocks, bonds, commodities, forex, indices, cryptocurrencies and ETFs, with competitive fees and support for MetaTrader 4 and a proprietary platform.

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    Established in 2005 in Australia, FP Markets is an ASIC- and CySEC-regulated broker boasting an extensive suite of tradable assets. Its Standard and Raw accounts cater to traders at every level, while it packs a punch in the tooling department, from the MetaTrader suite and intuitive TradingView to actionable trading ideas from Trading Central and AutoChartist.

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    Admirals is a multi-regulated broker with an excellent range of leveraged instruments, including forex, stocks, indices, ETFs, commodities, cryptos and more. The broker supports the MetaTrader 4, MetaTrader 5 and TradingCentral platforms. With both spread betting and CFDs available and thousands of instruments, this broker provides more flexibility than most rivals.

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    Libertex is a well-known broker, established in 2012. The regulated brand has served numerous clients and is regulated by the Cyprus Securities and Exchange Commission with license number 164/12. Libertex offers CFD trading on 250+ underlying assets, including through an innovative and user-friendly proprietary web trader platform. Choose between CFDs on forex, cryptocurrencies, commodities, stocks, indices and ETFs, which are available with tight spreads and low commissions.

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    HYCM is an online broker with authorization from four international bodies including the FCA and CySEC. The broker offers short-term CFD trading on forex, shares, commodities, indices, ETFs and Bitcoin, and supports the MT4 and MT5 platforms, as well as Trading Central analysis.

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    FXOpen is a multi-asset broker with regulation from several trustworthy bodies including the UK's FCA. The broker offers CFD trading on forex, stocks, commodities, indices, cryptocurrencies and ETFs via the MetaTrader 4 & 5 and TradingView platforms.

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    Saxo Markets is a multi-award-winning trading brokerage, investment firm and regulated bank. With a huge 72,000+ trading instruments, plus investment products and managed portfolios, clients have no shortage of opportunities. The trusted brand also offers transparent pricing and top-tier regulatory protection from 10+ agencies including FINMA, FCA & ASIC.

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    Zacks Trade is a FINRA-regulated US broker offering trading on stocks, ETFs, cryptocurrencies, bonds and more through a proprietary terminal. The broker is geared toward active traders and offers very affordable fees on most assets as well as an app and a vast amount of market data.

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    Just2Trade is a reliable multi-regulated broker registered with FINRA, NFA and CySEC. The company has 155,000 clients from 130 countries and stands out for its huge suite of instruments and additional features, including a social network, robo advisors and a funded trader programme.

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    FXCentrum is an offshore broker that offers highly leveraged, commission-free trading on diverse instruments with tight spreads. Traders can access forex, equity and commodities markets via MetaTrader 5 or the proprietary FXC platform and use the award-winning ZuluTrade platform for copy trading.

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    Capital.com offer CFDs on a range of markets with competitive spreads and zero commissions. The broker also offers the Investmate app, negative balance protection and leveraged trading.

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    Trading 212 is a European and UK-regulated CFD broker that also offers stock investing and ISAs. It’s best known for its commission-free trading model and beginner-friendly app, which has helped it attract 2.5 million users and £3.5 billion in client assets.

Tips to Buying ETFs

Investing in ETFs introduces some complexities into the equation, since they basically contain a basket of assets each with its own peculiarities. The factors that influence the movement of a stock index are not the same that create volatility in an instrument like gold or silver. In some cases, an ETF may contain assets located in a different country which have a set of rules on how assets are traded. Some of these different nuances behove the trader to consider his ETF investment carefully.  Some of the tips that ETF investors should consider before buying that juicy-looking investment are as follows:

A bull market somewhere may translate into a bear market elsewhere. You may be faced with a choice of what ETF to buy based on the constituent assets. The unrest in the mines in South Africa owned by some of the world’s biggest producers of gold and platinum have seriously undermined the production levels of these assets, leading to a demand surge and an increase in the price of these commodities. As a result, the platinum-based ETF ETFS Physical Platinum Shares (NYSEArca: PPLT) soared by 10% in September while the UBS E-TRACS Long Platinum TR ETN (NYSEArca: PTM) gained 12.4% in the same time frame. When news filtered out that an agreement had been reached on ending the strike, these ETFs retreated in price.

The political crisis in Cote d’Ivoire in 2011 led to a sharp spike in cocoa prices, and cocoa ETFs and ETNs experienced price appreciations. These are situations that a trader should consider when choosing an ETF basket as ETFs vary with constituent assets, regions, sectors, etc.

From the examples we have shown here, sometimes the investor’s risk appetite and the political and economic situation in a country will play a huge role on the kind of ETF the trader decides to invest in. A systemic market event will lead money to exit the stock market and into fixed-income instruments with guaranteed returns such as bonds, so it may make sense to buy bond ETFs during such periods.

ETF Taxation

Earnings on ETF investments are taxed. If your ETF investment spans assets listed in several different countries, it makes sense to understand what the taxation policies of those countries are. There is no point investing money in an ETF containing assets from countries where profits are heavily taxed. In such instances, the trader may be better off investing such money in other assets or in other territories with more modest taxation policies. In the same vein, you also need to know what you are paying in fees and commissions for your ETF investments.

Investment Strategy

What is your ETF investment strategy? Are you buying ETFs for retirement? You may try leveraged ETFs as those are the ETFs with lower risk, suitable for those about to retire. How much risk can you take on? How long do you want to hold an ETF? What is the motivation for purchasing an ETF as opposed to other forms of investments? The answers to some of these questions will give you an idea as to the type of ETF to buy, how to buy, when to buy and how long to hold the investment before selling. Defining the investment strategy will help a trader buy the right type of ETF.

Research ETFs Before Buying

It always pays to carry out some due diligence on the ETF market, and try to know a little bit about ETFs before putting money in it. Do not take some of the sales pitches of some of the self-professed ETF investment gurus to heart. Some are compensated to shell out endorsements on some ETF products, so the obvious conflict of interest would not be in your favour.

These ETF buying tips do not constitute an exhaustive list of the considerations that an investor should make before buying an ETF, but they will serve as a guide on how to go about ETF investments.

How to Invest in an ETF

ETFs are traded on stock exchanges like NASDAQ. You cannot just walk into a shop to buy an ETF. You have to trade ETFs on stock exchanges, and the only access to stock exchanges is through licensed brokers. SO the starting point of an ETF investment for a beginner is to look for a brokerage where you can deposit money and trade exchange traded funds. There are several ETF brokers to choose from. The most important parameters are to find a broker that is licensed, regulated and has a wide range of ETFs to choose from.

Understanding ETF Investments

It would be foolhardy to simply find a broker, take money and start trading without having even the most basic knowledge of ETFs. It is good to understand what kind of ETFs are available for you, what ETFs you should be trading, the process of trading ETFs, fees applicable, and any other information that will affect the outcome of your trading. We will therefore touch on a few of these topics for your information.

Types of ETFs

There are several ways of classifying ETFs. The commonest method is by classifying ETFs according to the basket of securities that they carry. In this class, you can have commodity ETFs, stock ETFs, bond ETFs, currency ETFs, etc. These are ETFs that are made up of a basket of strictly commodities, stocks, bonds and currencies respectively. ETFs can also be classified according to the sectors that the assets are listed in, and such ETFs would include stock assets listed in a particular sector (e.g. pharmaceuticals or real estate). ETFs can also be classified as local ETFs and foreign ETFs (containing assets listed in foreign exchanges). ETFs may also track baskets of assets in a direct manner, or in an inverse manner (inverse ETFs, which move in an opposite direction to the asset(s) being tracked). So you must understand what type of ETFs that are available and which ones you should be trading.

As a beginner, you should trade just the simplest ETFs. These are ETFs that either track a single security, or track a basket of securities that are either listed in the same sector or are of the same asset type. You must keep it simple initially and avoid trading complicated setups until enough experience has been acquired.

Fees

ETF investing, though traditionally cheaper than mutual fund or hedge fund investing, also carries fees. The fee structure for ETF investments differs from broker to broker. It is left for you to find out what you will be paying to purchase or sell an ETF.

You will also pay the broker’s trading fees every time you buy or sell ETF shares.

 

Trading Process

This is quite simple. A trader is expected to simply buy or sell an ETF depending on the expectation of where the price of the ETF will go, and this is a function of the performance of the basket of securities being tracked.

A few brokers may provide a demo account for new traders to practice ETF trading. This will also afford the trader the opportunity to get used to the trading platforms used for ETF trading.

Further Reading