Financial trading is a concept not known by every person even though they trade in it knowingly or unknowingly. Even when you get groceries from a supermarket, it is a type of transaction that counts for trading. But it is a matter of realization. For anyone who gets it and starts indulging in the game of commerce, success is not far behind them. ETF Trading 2023 tutorial is on a mission to widespread the message among classes and the masses.
What is ETF Trading?
There are several ways of entering the investment industry. Not everyone is experienced enough to take risks and game out options that could lead them to quick money.
When building a savings or retirement strategy, there are many different financial instruments to choose from – such as mutual funds and ETFs – which have different functions in an investor’s portfolio.
Whether an individual is saving for a car, a house, college tuition, or retirement itself is immaterial when it comes down to picking out specific tools; they should consider what their ultimate goal is so they can pick which route will help them get there faster. This is where this white paper comes into play. Read up!
ETF Assets Held
The exchange-traded fund holds various assets and instruments like stocks, forex, commodities, cryptocurrencies, bonds, etc. There is an arbitrage mechanism that gets channelized in it. People can trade close to the net asset value, which helps in enlarging profits. However, there may be some instances that can cause deviations in the market.
ETFs are Index Funds
Similar to the bond market index or stock market index, ETFs command equal securities in equivalent proportions. Precisely, you can count most exchange-traded funds as index funds.
All major stock exchanges list ETFs, and a trader can buy and sell them whenever there’s a need.
Cost of ETFs Price
The volatility or frequency in the prices of shares for an ETF depends on the rate of underlying assets or instruments in the resources pool. They get produced via creation blocks and get traded in the stock market.
If one of the shares or the price of one stock does well or surges, it has a positive effect on ETFs and the trader makes profits. Also, vice-versa is true too. Hence, when prices drop, you can view ETFs facing the ire of the market.
Dividend of ETFs
You know, similar to the share market, you get an opportunity to make money through dividends. However, the value of a dividend depends completely on the type of asset management a shareholder does. Besides, the ETF company’s performance is also responsible for it.
Passively or actively, a portfolio manager has to comply with the norms and regulations of regulated authorities and exchanges.
Before advising, they have to check how the market performs and various other circumstances that may affect their preparations.
Passively Managed ETFs
For trading in a passive manner, a trader or the service provider has to follow certain indices and see how they perform. After getting a clue, things get on the pedestal of profits. Here investing happens only in those stocks or companies whose prices are on the rise. However, it can be risky, but one has to ensure several aspects like stop-loss and limit orders while indulging in them.
Actively Managed ETFs
In it, the portfolio manager accesses the stock market situation or any other instrument or asset before allowing the client to invest. Calculated risks are generally advised by investing in companies that exhibit great potential for growth and gains.
If you compare ETFs to mutual funds, then the former clearly has the edge over the other.
Broadens the limit of Investment
If you invest only in a company’s share, you can neither grow as an investor, nor you would be where you want to be. Moreover, there is the involvement of high perils, because if the market moves red, and your company follows the trend, a loss is lurking at you.
Additionally, you get stuck as an investor, and there is nowhere you can look around when losses strike. However, in ETFs, you can spread your finances across various equities. It scatters over different dimensions; hence, the risk gets diluted to an extent. Besides, if you lose money on one, there’s a probability that you gain on the other.
In an ETF pool of resources, if one asset does not perform as per the expectations, rests are there to compensate with a phenomenal success rate.
Benefits of ETF Trading
- The expenses, while you trade in an ETF, are lesser. In mutual funds, you may have to shell out money or pay charges on investing or exiting and entering a set position. There are management fees and other curricular costs, which add up to your transactions. So, the overall expense ratio is high here.
- However, the expense ratio of ETFs trading is low, as they get traded like shares on a stock exchange.
- Mutual funds depend highly on NAV, and their performance, and one can determine their prices when the last session ends. There is no compulsion attached to ETFs.You can observe changes instantly and decide when and what amount to purchase or sell. So, there is the flexibility of choosing and expanding your horizon to increase chances for better profits.
- ETFs are mostly tax-friendly, and many countries offer relaxation over their liabilities. However, you can be subjected to capital gains for holding exchange-traded funds, but the fee levied on them is relatively low.
- EFTs get managed passively, so traders wait and see when the market is feasible for them for trading. There are no compulsions and requirements for entering or exiting the position at the day’s end.
- Investment in ETFs happens in growth stocks or blue-chip securities that are not vulnerable to hefty losses when the market takes a dip.
- The ETF market does not boast of any embellishments.
Limitations
Although ETFs are riding on the nerves of almost everyone, from novice to experienced traders, there are some drawbacks that one shouldn’t ignore.
Condition of Stock Markets
As ETF depends on the underlying value of securities. So, when the stock market jumps, the prices of exchange-traded funds would replicate it, and likewise when it plunges deep. Unlike government bonds, there is no stability available to traders. They have to depend on the performance of shares.
Brokerage Fees
ETFs copy ways of transactions from shares. Hence, when you buy or sell them, some portion of the commission or fee gets charged along with trades. However, if you are trading with brokers like ROinvesting, Capitalix, and InvestFW, then the cost incurred by you can become lesser.
Charges here are reasonable, and services are optimized for users. There are some other brokers that you’ll have to search for as per the requirement.
Diversification of Funds
Diversified funds may look great for result-oriented and worthwhile goals, but not everything is hunky-dory. There are several stocks and companies which have amazing potential for growth, but due to the passive investment policy, they get overlooked. Therefore, people miss chances of earning there.
Tracking Error
Technical discrepancies can create issues while tracking the market sometimes. However, most of the time it tracks trades exceedingly well.
Liquidity Issue
There are some ETFs that get traded thinly. They come with a wide ask/bid spreads. That essentially means that a trader would be purchasing at the high price of the spread and exiting at the lower.
Different Types of ETFs
These diversified assets and instruments render little joy to investments to market players.
The financial market is wide open to offer benefits. Here are some:-
Commodity ETFs
These ETFs direct the funds to invest in sundry commodities, including precious metals like gold, silver, and platinum. There are agrarian products, such as wheat, corn, cotton, etc. for trading. Moving further, there are energy fuels like oil, natural gas, hydrocarbons, and other assets for investment. The structure of the Commodity ETFs looks like exchange-traded grantor trusts. In a fixed portfolio, you get a direct interest.
Forex ETFs
In a basket of currencies, you can invest or sell them in the forex market when prices hit low or high. Traders can take advantage of a change in the forex exchange spot. Even ordinary or newbie traders can earn benefits in this trading.
Inverse ETFs
Various derivatives come together to construct inverse ETFs, which help in fetching benefits even when the market is down or takes a nosedive. It profits from the down-run value of the underlying benchmark.
Leveraged ETFs
The returns in leveraged exchange-traded funds are an attempt to draw the multiplication of the expected profits on an index. Experts market it as bear or bull funds.
Thematic ETFs
It eyes on societal trends which are generally longer terms. Such trending includes the market’s triggering through climate change, disruptive technologies, and changes in traders’ behaviour.
ETF Trading List
Here’s the list of best exchanges and their volumes. Select one of the markets or exchanges that suits your plans and agenda
| Name | AUM | Average Volume | Symbols |
SPDR S&P 500 ETF |
$323,681,000.00 | 71,662,086 | SPY |
| ProShares UltraPro Short QQQ | $1,398,160.00 | 62,754,887 | SQQQ |
| Financial Select Sector SPDR Fund | $24,145,400.00 | 56,606,117 | XLF |
| iShares MSCI Emerging Markets ETF | $27,546,900.00 | 44,197,813 | EEM |
| ProShares Ultra VIX Short-Term Futures | $1,411,920.00 | 39,146,016 | UVXY |
| Invesco QQQ | $149,662,000.00 | 37,415,434 | QQQ |
| S&P 500 VIX Short-Term Futures ETN – iPath Series B | $903,360.00 | 35,743,695 | VXX |
| Energy Select Sector SPDR Fund | $13,426,800.00 | 33,583,215 | XLE |
| S&P 500 Bear 3X Shares – Direxion Daily | $563,212.00 | 33,488,395 | SPXS |
| ProShares UltraPro QQQ | $9,413,080.00 | 28,571,756 | TQQQ |
| iShares iBoxx $ High Yield Corporate Bond ETF | $24,574,300.00 | 28,258,018 | HYG |
| iShares Silver Trust | $14,045,100.00 | 26,765,477 | SLV |
| iShares MSCI Brazil ETF | $6,476,950.00 | 25,845,383 | EWZ |
| iShares Russell 2000 ETF | $59,298,200.00 | 25,606,742 | IWM |
| ProShares UltraPro Short S&P 500 | $687,371.00 | 23,915,486 | SPXU |
| VanEck Vectors Gold Miners ETF | $16,338,800.00 | 23,271,947 | GDX |
| iShares MSCI EAFE ETF | $51,859,000.00 | 22,014,518 | EFA |
| iShares Gold Trust | $31,535,800.00 | 19,998,568 | IAU |
| Direxion Daily Small Cap Bear 3X Shares | $395,045.00 | 19,537,102 | TZA |
| iShares China Large-Cap ETF | $4,018,670.00 | 15,127,166 | FXI |
| iShares Core MSCI Emerging Markets ETF | $66,853,900.00 | 12,642,802 | IEMG |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | $54,493,600.00 | 12,350,248 | LQD |
| ProShares UltraShort S&P 500 | $797,478.00 | 11,939,645 | SDS |
| Utilities Select Sector SPDR Fund | $11,891,900.00 | 11,914,345 | XLU |
| Industrial Select Sector SPDR Fund | $16,066,500.00 | 11,081,286 | XLI |
| Vanguard FTSE Emerging Markets ETF | $69,294,500.00 | 10,424,203 | VWO |
| ProShares Short S&P 500 | $1,897,300.00 | 10,413,398 | SH |
| iShares 20+ Year Treasury Bond ETF | $18,938,800.00 | 10,147,531 | TLT |
| ProShares UltraPro Short Dow30 | $508,121.00 | 10,054,337 | SDOW |
| Direxion Daily Small Cap Bull 3X Shares | $1,620,310.00 | 10,000,617 | TNA |
| ProShares UltraShort QQQ | $229,603.00 | 9,603,137 | QID |
| SPDR S&P Regional Banking ETF | $1,958,660.00 | 9,095,492 | KRE |
SPDR Gold Trust |
$70,364,400.00 | 9,042,481 | GLD |
| Consumer Staples Select Sector SPDR Fund | $13,335,700.00 | 8,631,400 | XLP |
| Health Care Select Sector SPDR Fund | $25,056,600.00 | 8,449,672 | XLV |
| Technology Select Sector SPDR Fund | $37,406,000.00 | 8,403,583 | XLK |
| iShares Core MSCI EAFE ETF | $82,642,800.00 | 8,249,171 | IEFA |
| SPDR S&P Oil & Gas Exploration & Production ETF | $2,334,760.00 | 8,189,271 | XOP |
| Vanguard FTSE Developed Markets ETF | $86,072,300.00 | 8,072,258 | VEA |
| VanEck Vectors Junior Gold Miners ETF | $6,196,570.00 | 7,769,849 | GDXJ |
| Direxion Daily S&P 500 Bull 3X Shares | $1,641,430.00 | 7,243,989 | SPXL |
| SPDR Barclays High Yield Bond ETF | $12,569,300.00 | 7,033,382 | JNK |
| Invesco Senior Loan ETF | $4,712,880.00 | 6,612,225 | BKLN |
iShares MSCI Japan ETF |
$13,083,600.00 | 6,566,014 | EWJ |
| ProShares UltraPro Short Russell2000 | $103,761.00 | 6,231,128 | SRTY |
| Materials Select Sector SPDR ETF | $5,167,450.00 | 6,161,905 | XLB |
| Direxion Daily Junior Gold Miners Index Bear 2X Shares | $79,319.20 | 6,014,705 | JDST |
| iShares U.S. Real Estate ETF | $5,328,630.00 | 5,943,358 | IYR |
| iShares MSCI Germany ETF | $2,616,470.00 | 5,647,412 | EWG |
| U.S. Global Jets ETF | $2,908,600.00 | 5,633,242 | JETS |
| iShares MSCI Hong Kong ETF | $1,419,330.00 | 5,467,017 | EWH |
| iShares Core U.S. Aggregate Bond ETF | $84,686,800.00 | 5,453,246 | AGG |
| iShares 7-10 Year Treasury Bond ETF | $14,799,600.00 | 5,429,214 | IEF |
| iShares U.S. Treasury Bond ETF | $14,536,800.00 | 5,385,805 | GOVT |
| iShares Preferred and Income Securities ETF | $19,167,100.00 | 5,384,234 | PFF |
| United States Oil Fund | $3,699,800.00 | 5,102,059 | USO |
| SPDR Barclays Capital Short Term High Yield Bond ETF | $3,683,290.00 | 5,074,629 | SJNK |
| ProShares UltraPro S&P 500 | $1,764,730.00 | 4,999,222 | UPRO |
| iShares MSCI EMU ETF | $5,048,100.00 | 4,933,695 | EZU |
| Direxion Daily Energy Bull 2X Shares | $440,104.00 | 4,902,536 | ERX |
| VanEck Vectors Russia ETF | $1,595,340.00 | 4,868,302 | RSX |
| Vanguard Total Bond Market ETF | $67,496,100.00 | 4,822,004 | BND |
| United States Natural Gas Fund | $410,481.00 | 4,717,080 | UNG |
| ProShares VIX Short-Term Futures ETF | $325,559.00 | 4,509,579 | VIXY |
| iShares Global Clean Energy ETF | $4,491,240.00 | 4,462,911 | ICLN |
| ProShares Ultra Bloomberg Crude Oil | $898,178.00 | 4,452,629 | UCO |
ProShares Short QQQ |
$539,586.00 | 4,410,709 | PSQ |
| Direxion Daily Gold Miners Bear 2X Shares | $93,455.10 | 4,378,718 | DUST |
| iShares Core S&P Small-Cap ETF | $56,124,900.00 | 4,355,381 | IJR |
| iShares J.P. Morgan USD Emerging Markets Bond ETF | $19,082,700.00 | 4,347,080 | EMB |
| SPDR S&P Biotech ETF | $7,220,590.00 | 4,334,504 | XBI |
| Vanguard Real Estate Index Fund | $30,655,600.00 | 4,161,667 | VNQ |
| iShares MSCI India ETF | $4,240,470.00 | 4,134,225 | INDA |
| Vanguard FTSE Europe ETF | $14,260,200.00 | 4,127,188 | VGK |
| iShares MSCI United Kingdom ETF | $2,851,170.00 | 4,109,880 | EWU |
| iShares MSCI Taiwan ETF | $5,276,490.00 | 4,000,926 | EWT |
| iShares MSCI South Korea ETF | $6,811,960.00 | 3,995,666 | EWY |
| iShares Core S&P 500 ETF | $234,135,000.00 | 3,974,786 | IVV |
| Direxion Daily Financial Bear 3X Shares | $202,663.00 | 3,908,143 | FAZ |
| Real Estate Select Sector SPDR Fund | $2,187,570.00 | 3,901,591 | XLRE |
| iShares MSCI ACWI ETF | $14,018,800.00 | 3,876,097 | ACWI |
| iShares MSCI China ETF | $6,410,960.00 | 3,762,906 | MCHI |
| ProShares UltraShort Bloomberg Crude Oil | $102,502.00 | 3,613,672 | SCO |
| Vanguard Total Stock Market ETF | $199,629,000.00 | 3,514,771 | VTI |
| SPDR Dow Jones Industrial Average ETF | $24,094,700.00 | 3,491,851 | DIA |
| Direxion Daily Aerospace & Defense Bull 3X Shares | $311,365.00 | 3,479,351 | DFEN |
| Direxion Daily S&P Oil & Gas Exploration & Production Bull 2x Shares | $521,997.00 | 3,454,968 | GUSH |
| SPDR S&P Retail ETF | $657,285.00 | 3,370,362 | XRT |
| Alerian MLP ETF | $4,276,750.00 | 3,361,971 | AMLP |
| iShares MSCI-Australia ETF | $1,755,470.00 | 3,340,786 | EWA |
iShares U.S. Home Construction ETF |
$2,096,800.00 | 3,298,345 | ITB |
| ARK Innovation ETF | $19,108,800.00 | 3,295,615 | ARKK |
| Xtrackers Harvest CSI 300 China A-Shares Fund | $2,336,890.00 | 3,274,874 | ASHR |
| SPDR S&P Bank ETF | $2,557,250.00 | 3,237,918 | KBE |
| iShares Edge MSCI Min Vol USA ETF | $32,990,100.00 | 3,203,380 | USMV |
| Consumer Discretionary Select Sector SPDR Fund | $18,176,700.00 | 3,193,858 | XLY |
| Invesco Preferred ETF | $6,987,440.00 | 3,181,815 | PGX |
| Communication Services Select Sector SPDR Fund | $11,868,700.00 | 3,157,874 | XLC |
| Vanguard Total International Stock ETF | $37,411,500.00 | 3,128,480 | VXUS |
| SPDR EURO STOXX 50 ETF | $1,870,610.00 | 3,098,112 | FEZ |
Choose any of the markets and apply your funds there. As per the recommendation, it is better to start with those with higher volumes.
Conclusion
In the above article, we have discussed the advantages of ETF trading, the different types of ETFs, and the risks associated with them. We have also covered the advantages of ETF trading over other investment products. We hope that this article will be beneficial to you, so feel free to share it with your friends and family on social media.
