What is an ETF?

An ETF is a popular investment vehicle that is an exchange-traded fund. It may specialise in stocks in one particular sector or hold securities from a variety of sectors.

There are also ETFs that replicate a basket of a particular stock index. With them, it's convenient to invest in indices without having to purchase all the stocks in the index basket yourself.

When investing in an investment fund, an investor is not buying the securities of one particular corporation but a portfolio of assets in which the financial institution has concentrated its interests. Examples of large exchange-traded funds are the SPDR S&P 500 ETF (SPY), iShares Core S&P 500 ETF (IVV), Vanguard S&P 500 ETF (VOO), Vanguard Total Stock Market ETF (VTI) and Invesco QQQ Trust (QQQ).

An investor's gain from investing in ETF securities is equal to the difference in the purchase and subsequent sale prices of those shares and the amount of dividend received if dividends are paid out.

The most common types of ETFs

  • Index ETFs replicate a basket of stocks in stock indices
  • Commodity ETFs track the price movements of oil, metals, electricity, agricultural products, and other commodities
  • Bond portfolios create portfolios of bonds according to selection criteria such as country or industry
  • Industry-oriented sector or production funds specialise in securities of companies in a single industry
  • Dividend-oriented ETFs focus on stocks of companies that pay dividends
  • Special funds are created for specific assets
  • Inversion funds allow you to make money by reducing the price of the underlying asset

How to trade ETFs

To trade ETFs, it is necessary to open a trading account at a brokerage company. You then select the desired ETF through your trading terminal and make a purchase or sale in the same way as when trading any other financial instrument.

The approach you choose to trade ETFs depends on your goals:

  • Long-term investments
  • Speculative intraday or medium-term trading
  • Risk hedging in combination with other financial instruments

The trading strategy will determine the choice of the analysis method. For example, fundamental analysis is more suitable for long-term investments, while technical analysis is better suited for short-term speculation

RoboMarkets provides the opportunity to invest in ETFs* via the R StocksTrader terminal

Advantages of ETFs

  • Availability on the stock exchange
  • Transparent and clear portfolio structure
  • The possibility of implementing various trading strategies
  • Low entry threshold
  • High liquidity of assets
  • Diversification

* – This product is available only to Professional clients.