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How to Trade ETFs

TABLE OF CONTENTS

How to Trade ETFs

How to Trade ETFs

Vantage Updated Updated Fri, 2024 January 26 06:41

In the ever-evolving landscape of investment opportunities, Exchange-Traded Funds (ETFs) have taken centre stage, experiencing remarkable growth over the years. A testament to this growth is the staggering increase in total assets under management (AUM) for global ETFs, which surged from $204 billion in 2003 to an astonishing $9.6 trillion by the end of 2022 [1]

Continue reading to discover how traders can begin their trading journey into ETF trading.

What is ETF Trading and Popular ETFs to Watch

Exchange-Traded Funds (ETFs) are a type of investment product that bundles up a collection of investment assets — from stocks and bonds to commodities. These ETFs are traded openly on stock exchanges, mirroring the behaviour of the index it’s striving to track. Their accessibility and liquidity interesting characteristics have made them a popular choice for both new and seasoned traders.

ETFs, with its ability to offer traders a broad exposure to a wide variety of products through a single fund, has made it efficient for traders, and simplifies the diversification process. When traders buy and sell these funds, they can diversify their investments without having to pick and buy each asset separately.

Popular ETFs to Watch

There is a plethora of ETFs that are popular among traders. For instance, the SPDR S&P 500 which tracks the S&P 500 is one of the very first ETF to be listed in the US [2]. It is also one of the most actively traded ETFs today [3].

Another popular ETFs is the Invesco QQQ ETF which is used to track the Nasdaq-100 Index, which comprises the 100 most actively traded companies that are listed on the Nasdaq stock exchange.

Commodity ETFs like the SPDR Gold MiniShares ETF (GLDM) also draw significant attention from traders and investors alike. This ETF offers exposure to gold, a precious metal that has historically been viewed as a hedge against inflation and currency fluctuations. Unlike physical gold, which can be troublesome to store and transact, the GLDM ETF allows investors to gain exposure to gold’s price movements without the need to physically hold the metal.

These ETFs are not only popular, but they also provide traders with a hint about the overall well-being of the market. In the ever-changing financial world, paying attention to these popular ETFs will help traders to take note of the bigger changes in economies, trends in different industries, and important movements worldwide. This information can help traders to make better informed trading decisions.

Ready to get started with ETF trading? Sign up for a Vantage live account now to get started with ETF Contract for Differences (CFDs) trading and trade both upward and downward market movements.

Types of ETFs

There is an array of ETFs available to trade, which caters to various trader goals and strategies. Here are the few different types of ETFs you can find:

1. Equities ETF

Equity ETFs, also called stock ETFs, are like baskets of stocks that track and replicate the performance for a specific stock index. This provides traders an opportunity to hold many companies at once, without having to buy each stock separately. These ETFs can also be categorised by market capitalisation or industry sectors.

By trading equities ETFs, you can gain exposure to a diversified portfolio of stocks (equities).

2. Fixed-Income ETFs (or bond ETFs) 

These funds are also often referred to as bond ETFs, and they usually track a bond index. Fixed income funds in ETFs are sorted based on the average time or maturity of the bonds they hold. Fixed-income ETFs can also be grouped based on the type of issuer, the credit risk, the yield distributed, or the region they focus on. 

These ETFs give traders a chance to enter the bond market using the simplicity and transparency of stock trading.

3. Commodity ETFs

Commodity ETFs can encompass an array of commodities, including gold, oil, natural resources, and precious metals; or they might concentrate on a single commodity. This gives traders exposure to the commodities market, via ETFs instead of trading the actual underlying commodities.

Examples of specific commodities include the SPDR Gold Shares, one of the first US traded gold ETF that is backed by a physical asset [4].

4. Country/Region-based ETF

Country or region-based ETFs are investment funds that offer traders a way to access the financial market of a specific country or region. If you have an interest in diversifying your portfolio with exposure to the Japanese or European economy, but are uncertain about the selection of specific corporations, you can consider opting to trade ETFs. 

Such an ETF provides comprehensive exposure to a diverse selection of corporations within the chosen country or region, removing the need for individual stock selection. 

Learn more about the different types of ETFs available here.

How To Trade ETFs

trade ETFs

When it comes to trading ETFs, the process can mimic that of trading stocks through a broker. Traders can also use derivative instruments such as CFDs to trade ETFs. This section will help readers to better understand the nuances of ETF trading.

1. Understand what moves the ETF markets 

Economic Indicators

Economic signs, events and decisions can impact ETFs. Economic events can include things like unemployment rate, GDP growth, inflation, and central bank decisions. The state of the economy can directly and indirectly impact ETF movements. A bullish market could bode well for stock ETFs, while a bearish market could benefit bond ETFs instead. 

Financial Statements and Earnings Report

Company earnings and financial statements are also critical factors to consider. As ETFs often bundle assets from various companies, the combined financial health of these entities can influence the overall ETF’s value. When a company reports strong earnings, it could have a positive impact on its stock price as it helps instil confidence in traders, with a bright outlook for the future.

However, it’s important to note that a single stock price movement is ultimately just one of many stocks within the ETF.

Global Events and Policy Shifts

The price of ETFs may be affected by factors such as trade conflicts, electoral processes, and global emergencies. This is because these events can create uncertainty and change in the economic environment, just like how the Covid-19 pandemic impacted the markets drastically. Traders that can grasp the overall market conditions will be able to make better informed trading decisions.

2. Trade ETFs using Technical Analysis

Traders can use technical analysis to forecast where the prices of a specific ETF might go next. 

This involves looking at past market data, especially price and volume. By studying charts, patterns, and tools like Moving Averages or the Relative Strength Index (RSI), traders can spot possible times to buy or sell. 

Technical analysis involves mathematical analysis and can work together with fundamental analysis to give traders a better idea of how the ETF market works.

3. Craft ETF Trading Strategies

Having a well-planned trading strategy will help traders better plot a clear entry and exit points for traders, as well as set stop-loss and take-profit levels. 

It also involves setting clear goals, defining limits on how much risk traders are willing to take, and establishing a timeline for their trades. Regularly reviewing and adjusting the strategy based on market conditions is also essential.

To help traders understand the ETF trading strategy better, read this article on ETF trading strategies. Knowing the wide variety of trading strategies available can help you to refine your own ETF trading strategy.

4. Decide how you want to trade ETFs

As mentioned above, there are a wide variety of options for traders to select from when trading ETFs. The approach to trade the ETFs can vary depending on the trader’s goals, risk appetite and the overall market outlook. 

Trade ETFs using CFDs

CFDs allow traders to speculate on the price movements of the ETFs without the requirement to own the underlying assets. Most brokers offer traders the potential to use leverage for all their trades. This will allow traders to control a larger position with a smaller deposit. This leverage can also be a double-edged sword as it increases the potential for larger losses as well.

Vantage offers traders the platform to trade ETFs CFDs. Speculate on both rising and falling markets, opening the door to a broader range of trading strategies. Open a live account now.

Long or Short?

In CFD trading, when a trader takes a long position, it means the trader is speculating that the price of the ETF will increase. Conversely, if a trader takes a short position, it means the trader is anticipating that the price of the ETFs will decline. 

The flexibility to go long or short makes CFD trading an appealing option for traders looking to capitalise on both rising and falling markets. 

5. How to Pick the right ETFs to Trade

Selecting the right ETFs requires a thorough understanding of your own goals, as well as in-depth research on shortlisted ETFs. As a trader, you can evaluate aspects such as the ETF’s past performance, expense ratio, the credibility of the managing institutions, and the type of assets within the funds.

Market liquidity is another important factor that shouldn’t be overlooked. When an ETF experiences high trading volume, the bid-ask spreads are typically narrower, which can result in lower trading costs.  A well-diversified ETF might also be more appealing than one concentrated in a niche sector, as it offers more stability by spreading the risk across various types of products. 

Hence, always select ETFs based on your risk tolerance and market outlook.

How to Trade ETFs with Vantage

Vantage offers a platform for traders to delve into the world of ETFs, providing various tools and resources to help traders with their trading journey.

Open a Live account

To begin your trading journey with Vantage, traders can start by opening a live trading account. There are a range of accounts for traders to select from. Learn more about all the different trading accounts offered by Vantage here.

Once the trading account has been selected, traders can start the registration process by signing up through our Vantage App or website. This process requires you to provide your personal identification, financial particulars, and completing a risk assessment. After the account is verified, traders can proceed to deposit funds into their account through the extensive range of options offered by Vantage and embark on their trading journey.

Useful Tools/News

In the world of trading, having the right tools can make a significant difference. Vantage recognises this and offers traders a suite of advanced trading tools tailored to enhance their trading experience.

1. Metatrader 4 and 5 (MT4 and MT5)

These platforms are one of the most widely used platforms for traders worldwide. MT4 and MT5 offers a user-friendly interface, technical analysis tools, and automated trading capabilities. Whether you’re a newbie or a seasoned trader, MT4 and MT5 ensures you have everything you need at your fingertips.

2. ProTrader

Designed for professionals, this platform provides advanced charting options, rapid execution speeds, and a plethora of analytical tools. It’s the perfect tool for those looking to take their trading to the next level.

3. TradingView

Known for its intuitive design, TradingView offers detailed charting and a community where traders can share and discuss strategies. With Vantage, you can seamlessly integrate TradingView’s insights into your trading decisions.

Get Ideas from Academy articles

Vantage is dedicated to equipping traders with top-notch tools and knowledge. In addition to a broad range of trading tools, Vantage offers an educational academy packed with valuable resources.

Articles

Looking for quick insights on various topics? Our articles cover everything from trading basics and market trends to advanced strategies, catering to all levels of expertise.

Webinars

Join our live webinars to learn how to trade, and hear seasoned traders share more about the various trading strategies. These sessions tackle current market trends, and feature engaging Q&A segments, making them an interactive learning opportunity.

Alternatively, you can watch our past webinars on YouTube as well.

But why should traders invest time in these resources?

The financial markets are vast and constantly evolving. To navigate them successfully, traders need to be equipped not just with the right tools, but also with the right knowledge. Vantage’s academy provides insights, ideas, and tips that can enhance understanding and facilitate better decision-making.

Key Takeaways for How to Trade ETFs

Trading ETFs allows traders to tap into various market segments across broad product classes easily. To master ETF trading, one needs a mix of fundamental and technical analysis, a well-defined strategy, and regular reviews of your portfolio to keep pace with the ever-changing financial market.

Ready to dive into ETF trading? Open a live account with Vantage now. Trade ETF CFDs and benefit from an array of tools and resources Vantage offers to help streamline your trading experience.

References

  1. “ETFs – statistics & facts – Statista” https://www.statista.com/topics/2365/exchange-traded-funds/#topicOverview Accessed 25 Aug 2023
  2. “A Brief History of Exchange-Traded Funds – Investopedia” https://www.investopedia.com/articles/exchangetradedfunds/12/brief-history-exchange-traded-funds.asp Accessed 23 Aug 2023
  3. “SPDR® S&P 500® ETF Trust – State Street Global Advisors SPDR” https://www.ssga.com/us/en/individual/etfs/funds/spdr-sp-500-etf-trust-spy Accessed 23 Aug 2023
  4. “SPDR® Gold Shares – State Street Global Advisors SPDR” https://www.ssga.com/us/en/individual/etfs/funds/spdr-gold-shares-gld Accessed 23  Aug 2023
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