ETF Trading with FP Markets

ETF Trading
con FP Markets

What is an ETF?

ETFs are passive investment products that it’s price aims to track the basket of assets under the ETF. In ETF investing, traders do not have to acquire the investment product physically. Mutual funds such as The Vanguard Group, Commonwealth Funds, Morningstar, and BlackRock manage ETFs. A diverse range of companies are contained inside the fund.

An exchange-traded fund (ETF) is a passive investment fund traded on global stock exchanges. ETFs are popular financial instruments combining the advantages and benefits of investing in stocks, unlike mutual funds trading, over and above the benefits of trading in Index CFDs. Like other types of funds, ETFs pull together capital from traders into a basket of various investments, including stocks, bonds and other security assets.

ETFs usually represent several asset classes, which means that the objective of the ETF is to replicate the performance of that asset class. ETFs track specific assets such as stocks, bonds, commodities, and currency indices; thus, traders consider exchange-traded funds (ETFs) as a classic among portfolio diversification investments. ETFs are valuable financial assets that offer numerous advantages and could be an excellent financial instrument for traders to reach their trading goals. In 2021, ETFs reached a volume of $5.83T (USD), with nearly 2,354 ETF products traded on US stock exchanges.

A brief history of ETF trading

ETF trading began in Canada in 1990, following the American Stock Exchange (AMEX) crash of 1987, when physicist Nate Most was commissioned to create a new class of assets. Most created the first exchange-traded fund (ETF) to fuel the AMEX trading basket with a new and revolutionary structured asset class. Nate initially transformed the investing philosophy for institutional investors to execute sophisticated trading strategies. ETFs introduced the markets to the advantages of pooled investing and trading flexibility. The Standard & Poor's Depository Receipts, commonly known as SPDR (SPY), launched in 1993, is still the world’s most popular exchange-traded fund (ETF) with over $400B (USD) in investments.

Different types of ETFs

The investors’ demand and continuous technological progress have created more than 8000 exchange-traded funds. ETFs are now accessible to traders around the globe with lower ETF pricing access to different financial markets, sectors and asset types.

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

However, different ETFs offer traders different advantages and benefits of portfolio diversification. For instance, exchange-traded funds (ETFs) focused on specific sectors typically offer less diversification than those designed to replicate indices and their performances.

Bond ETFs

Bond exchange-traded funds (ETFs), commonly known as (Fixed Income ETFs) are important for traders in diversifying investment portfolios. Making different investment types is considered a good risk minimisation strategy and practice. Most professional traders also invest in fixed-income and bond ETFs because these investments can provide steady returns at potentially lower risks than equity ETFs.

Bond ETFs are designed to provide exposure to virtually every type of bond available; US Treasury Bonds, corporate and municipal bonds (munis), international, high-yield bonds, etc.

Gold (XAU)

Gold can be Invested in various ways, ranging from purchasing gold directly or owning shares of publicly traded mining firms.

Simple Transactions

Gold ETFs can be bought and sold at any time of the day, as long as the stock exchanges are open. Gold investments are seen by many as a great investment opportunity against inflation when the national currency is declining.

Gold ETFs and Dividends

Many ETFs provide dividends, making them appealing to investors.

These are some companies offering dividends.

  • iShares S&P 500 Growth ETF (IVW.arcx).
  • ProShares UltraPro QQQ ETF (TQQQ.xnms).
  • Vanguard Dividend Appreciation ETF (VIG.arcx).

Always check availability If you are looking for this particular service.

Gold is considered a safe-haven asset due to its regular price increases in response to stock market dips. Meanwhile, investors are placing money into gold ETFs in extensive amounts. Gold ETFs have stayed relatively stable in recent months despite the pandemic outbreak.

Equity ETFs

Equity ETFs track the performance of companies and stocks from specific regions and countries. Equity exchange-traded funds (ETFs) enable trading sectors like medical, techοlogy stocks and banking stocks to amplify traders' and investors' trading opportunities and potentials.

Alternative investment ETFs

Alternative investment ETFs are innovative structures enabling traders to invest in volatility or gain exposure to investment strategies, including covered call writing and currency carry.

Factor ETFs

Factor ETF investing is an investment strategy traders deploy to target specific vessels of returns across asset classes. Professional traders, Institutional investors and active managers have consistently used Factor ETFs trading through rules-based ETFs to manage their investment portfolios.

Inverse ETFs

An inverse ETF fund is an inverse reflection of a target index. For instance inverse funds go up when the target index depreciates, like when traders short-selling a stock due to stock price depreciation. Inverse ETFs are designed to profit from a decline in the underlying market or index.

Market ETFs

Market ETFs are designed to track a particular index like the SPY.ARC (Standard & Poor’s 500), and the STW.AXW (Australia 200 Index Cash).

Specialty ETFs

Specialty ETFs have two fund types that have emerged recently to meet specific needs for leveraged funds and inverse funds. These specialty ETFs offer much greater growth potential and a much higher risk.

Sustainable ETFs

Sustainable ETF trading combines different investment styles focusing on funds, either promoting sustainable economic models or markets. Sustainable ETFs include investment styles and socio-environmental, socio-economic and governmental insights. The main driving forces of the sustainable ETFs market are the ever-changing geopolitical risks such as demographic shifts, government regulations and laws.

Commodity ETFs

Exchange-traded funds (ETFs) are ideal for getting into commodities like gold (XAU), silver (XAG), oil (WTI, XBR, XTI) and other attractive stock alternatives for portfolio diversification and risk management. Commodity ETFs often do not directly own the underlying asset, like gold (XAU), but use derivatives instead. Commodity derivatives track the commodity's underlying price but often carry more risk, such as counterparty risks, than an exchange-traded fund (ETF) that owns the underlying asset directly.

Physically Backed ETF

Gold (XAU) is a prominent physically-backed ETF. Gold can be utilised in various ways; some people hedge against stock market volatility, US dollar weakness, and inflation. Gold is a simple instrument with gold bullion stockpiled in secure vaults. The price of this ETF will likely fluctuate in tandem with spot gold prices.

Gold mining investing

Investing in gold mining is generally seen as a long-term investment. Gold mostly outperforms all other precious metals. However, there are always risks to every investment.

The issuer’s organisation purchases and holds gold bars or invests in gold-related businesses with other ETFs. Investors subscribe to the fund’s shares, which vary in value (in tandem) with the price of gold or corporate stock.

Currency ETFs

Currency ETFs invest in currency and groups of currencies such as the United States Dollar (USD) or a basket of currencies. Currency ETFs trading is when traders invest either a single currency or currency derivatives or a group of currencies and currency derivatives. Traders consider currency derivatives to be currying additional risks to the ETF in some cases. In currency ETF investing, traders mainly buy the underlying currency when the market price rises. However, currency ETFs can be used by traders for hedging purposes to protect their investment portfolios and avoid potential currency risks.

Actively managed ETFs

Actively managed ETFs aim to outperform a single or a basket of indices, unlike most ETFs designed to track an index.

Exchange-traded notes (ETNs)

Exchange-traded notes (ETNs) are debt securities of illiquid markets backed by the credit reliability of issuing banks.

Foreign market ETFs

Foreign market ETFs are designed to track the Japanese Nikkei Index, Hong Kong’s Hang Seng Index, the S&P/ASX 200 index (Standard & Poor's and Australian Securities Exchange 200) and other non-US markets.

Leveraged ETFs

Leveraged funds are marketable securities that aim to amplify potential profits on a trade or investment by borrowing capital in the form of leverage to invest. ETFs ratios may vary depending on the underlying asset a trader wants to target.

Sector and Industry ETFs

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

Style ETFs

Style ETFs track an investment style or market capitalisation focus, including value and growth, such as large-cap value, medium-cap, and small-cap growth stocks.

How does ETF trading work?

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

ETFs work in a similar way to stock trading, meaning that the underlying assets’ owner creates a fund to track the underlying assets’ performance and sells shares to investors participating in the fund. Thus, shareholders own a percentage of the exchange-traded funds (ETFs) and not the underlying asset in the fund. However, unlike a company stock, the number of outstanding shares of an exchange-traded fund (ETF) can change daily due to the everchanging creation of new shares and the redemption of existing shares.

ETF issuers create baskets of underlying securities, including commodities, bonds, currencies, and stocks, under a unique ticker symbol and intraday price data. The underlying securities

are always in line with the exchange-traded fund market price because of exchange-traded funds (ETFs) capability to continuously redeem shares. 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 and are also considered easy to trade by some traders and investors.

Traders should always consider the risks before investing in any financial instrument.

How to trade ETFs?

There are mainly seven ETF trading strategies investors and traders can use since ETFs allow trading different investment classes and various sectors.

Dollar-Cost Averaging

  • basic strategy.
  • buying a set fixed-dollar amount of an asset on a regular schedule.
  • suitable for young people.
  • have a stable income from which they can save a little each month.
  • Preferably not 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.
  • A low investment threshold for most ETFs
  • Ideal for beginners, depending on their investment time horizon and risk tolerance.

Swing Trading

  • Take advantage of sizable swings in stocks or other instruments like currencies or commodities.
  • Few days to a few weeks to work out, unlike day trades, Unlike day trading
  • Diversificación de cartera
  • Tight Bid/Ask spreads

ETFs do not reflect a stock’s market performance; thus, they represent baskets of stocks or other financial assets. Investors often diversify their portfolios with ETFs, for they are less susceptible than stocks.

Sector Rotation

  • Target different sectors of the economy.
  • Execute sector rotation.
  • Possibility to take profits or avoid excessive losses by rotating to another economic sector.

Sector rotation allows traders to enter or exit trades in different sectors of the economic cycle, giving ETF traders more flexibility in the markets. For instance, assume an investor has been invested in a Gold ETF such as GLD.ARC. A trader may wish to take profits or close a position in this ETF and rotate into a Technology ETF like XLK.ARC

Physically Backed ETF

Gold (XAU) is a prominent physically-backed ETF. Gold can be utilised in various ways; some people hedge against stock market volatility, US dollar weakness, and inflation. Gold is a simple instrument with gold bullion stockpiled in secure vaults. The price of this ETF will likely fluctuate in tandem with spot gold prices.

Betting on Seasonal Trends

Seasonal trends are considered the sell in May and go away phenomenon for equities trading worldwide. Equities during the six-month May-October period underperform compared with the November-April period.

The most favourable period to trade in Gold (XAU) is usually in September and October, thanks to strong demand from India ahead of the wedding season and the yearly festival of lights.

Cobertura de riesgos

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

Strategy's objectives and vision

Suppose you want to trade CFDs, where the underlying asset is AGG.ARC and your account is in USD. If AGG.ARC is trading at: Bid 106 and Ask 107

If you decide to trade and BUY 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.

Por lo tanto, para abrir esta posición debes tener al menos la suma siguiente en tu cuenta:

20% x (100 x 107) = $2140

This in turn will give your position a value of $10700

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

Is ETF trading profitable?

ETF trading can be a profitable method to approach and trade the markets. Traders who enter the global stock exchanges with a well established financial plan and set goals can seize opportunities in ETF trading either for portfolio diversification or for hedging purposes. Traders should carefully investigate all factors to ensure that the ETF of interest is the best instrument to achieve their investment goals.

How to start trading ETFs?

Start trading ETFs in 9 simple steps:

Open a Demo and a Live trading account with FP Markets


Learn everything you need to know from FP Markets' resourceful trading academy


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 whether you will buy or sell the underlying asset


Place your trade and monitor your position closely


Diversify your investment portfolio to protect your open position from related trading risks


Once you reach the desired result, close your position


Analyse your performance and risks before proceeding with your next trades

Available ETFs

Símbolo Descripción de contrato adecuado Apalancamiento
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 - Preguntas Frecuentes

What is an ETF?

An ETF (exchange-traded fund) is a class of securities traders buy or sell through a brokerage firm on the stock exchange. ETFs are passive investment products that trade the spot price of financial assets. In ETF investing, traders do not have to acquire the investment product physically. ETFs are popular financial instruments combining the advantages and benefits of investing in stocks and trading mutual funds, over and above the benefits of trading in Index CFDs. ETFs pull together capital from traders into a basket of various investments, including stocks, bonds, and other security assets.

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