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ETF trading explained
ETFs are simply exchange-traded funds. That doesn’t clear things up for you? Let’s dive a bit deeper. ETFs are tradable instruments, not much different than stocks in the sense that they too can be traded by people all over the world on different stock exchanges. What ETF do, essentially, is track a basket of instruments, a stock index, bonds or a commodity.
Trading CFDs on ETFs
Just like other tradable instruments – shares, commodities, indices, etc. – ETFs can be traded in the form of CFDs (Contracts for Difference). This means that instead of trading the ETF itself, you are actually investing in the ETF’s price. The Vestle platform allows you to invest in different ETF CFDs. If you’re trying to locate a specific ETF, there are search categories available for your convenience.
Applying leverage
As you probably know, leverage is a popular trading tool used in CFD trading. It increases your trading power but also increases risk. Since Vestle is regulated by the FCA, we provide fixed leverage rates, dictated by our regulator. Leverage rates change from one CFD instrument to another and for ETFs, maximum leverage is currently 5:1.
This means that with a £500, for example, you can open deals worth up to £2,500 in trading power. How come? Because £500 (investment) x 5 (leverage) = £2,500.
Sell or Buy?
Let’s say you believe the price of a certain ETF will rise in the near future. What would you do? That’s right: You will buy the ETF CFD now, wait for the price to rise and (if you’re prediction was correct) sell it at a later date. This is called a ‘Buy’ deal and some traders also refer to it as ‘long trading’ or ‘going long’.
What happens if you believe the price of the ETF will decrease? In that case, you can open a ‘Sell’ deal. This is also known as ‘short trading’ or ‘going short’.
In a Sell deal, you essentially sell the instrument at a higher rate, hoping to buy it again when the price decreases. Many people find Sell deals confusing, but they are in fact just mirror image of standard Buy deals.
Opening an ETF CFD deal with Vestle
When the price of an ETF changes, traders want to react and fast. Regardless of whether you prefer to open deals via your smartphone, tablet or PC, you can do in 4 steps:
- Choose an ETF CFD (we’d list some examples, but most have very long names)
- Figure out your deal size (how much of your funds you want to invest in this deal)
- Decide the direction (Buy or Sell, also known as Long or Short)
- Click ‘Deal’
A quick reminder:
The Vestle trading platforms are equipped with all the trading tools and features you need to open and manage multiple deals. Automatic market orders such as Stop Loss and Take Profit will help you to better manage risks and have some control over your open deals, even while you’re not online.
The Vestle trading platforms are equipped with all the trading tools and features you need to open and manage multiple deals. Automatic market orders such as Stop Loss and Take Profit will help you to better manage risks and have some control over your open deals, even while you’re not online.
What factors can affect the price of ETFs?
Because many ETFs are composed from several instruments, their prices can be affected by changes in the instruments it tracks. Here are just a few examples:
- Financial news
- Earnings reports
- Interest rate decisions
- Politics & geopolitics
- The weather
- Level of confidence in global economy
- Trade agreements
Want to expand your knowledge of ETF trading, CFDs and online trading? Register today to access free trading tutorials and take advantage of a free Demo Account.