ETFs, or exchange-traded funds are a type of investment fund that are traded on a stock exchange, like company shares. Each ETF is built and managed with the goal of tracking the performance of a particular stock index, sector, commodity or theme (eg clean energy), bundling together multiple securities into a single, tradable asset. Investors buy and sell share in ETFs to gain diverse exposure to the markets or themes being tracked, without having to go to the trouble or expense of investing in all the constituent parts.

Fund managers create ETFs through buying and holding a basket of stocks that reflect the industry, region, exchange or theme they intend to track. They rebalance the portfolio either actively or passively to reflect changes in the makeup of the industry and the performance of its participants. The aggregated, weighted performance of these companies then determines the performance of the fund.

Any associated fees, such as annual management fees, trading costs and marketing costs, are built-in to the unit price of the ETF (they reduce the value of the ETF). They are deducted daily from the net-asset value (NAV) of the fund, and are expressed as a percentage, known as the expense ratio. The expense ratio incorporates all of the costs associated with setting up, managing and maintaining the fund, and is the main ETF cost metric to be aware of. Active ETFs generally have higher expense ratios than passive ETFs, which trade less frequently.

ETFs trade like stocks during the day while mutual funds are priced just once a day, after the market closes. ETFs are also typically cheaper to trade, with lower minimum investments.

Trading ETFs offers quick and easy diversification and, by providing broad exposure through a single instrument, can significantly reduce trading costs. They are also generally highly liquid making it easier to buy and sell during market hours.

Like all financial securities, ETF share prices can go down as well as up, and if you find yourself on the wrong side of the market you risk losing your investment. When trading CFDs on ETFs, you have the added risk of trading with leverage, which amplifies the size of potential losses (or profits) relative to your initial outlay.

And while ETFs are carefully designed to track a particular market or theme, this may not always be the case.

ETFs are listed and traded on various stock exchanges around the world, with standard market hours aligning with the local time zone.

Our standard hours are (GMT+3 when US DST is in place, GMT+2 at all other times):

*Australian shares trade according to a staggered start, with symbols beginning A-B opening at 01:01, C-F at 01:03, G-M at 01:05, N-R at 01:07 and S-Z at 01:10

Some ETFs pay dividends, depending on the assets they hold. However, ETF CFDs do not pay dividends, as the trader does not own the underlying ETF shares.

Margin

Margin refers to the funds required to open and hold a position. Retail clients can trade CFDs on ETFs with margins from 20% of the position value (up to 1:5 leverage). Eligible professional clients can trade ETFs with margins from 5% (up to 1:20 leverage).

Commission

When trading CFDs on ETFs, you trade on the underlying exchange prices with no mark-up on the market bid/offer spread. Instead, you’ll pay a small commission of $0.02 (USD) per share, per trade.

Swap rates

The swap rate refers to the interest charged (or credited) to your account for holding a long (or short) margined position overnight. We calculate the ETF swap rate as follows:Daily swap charge/credit =
(Market closing price x Trade size x (our charge* +/- ARR or IBOR)) / 360

*Our charge is 2.5%. If you’re long, you pay ARR/IBOR. If you’re short, you receive it.