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What Are Exchange Traded Funds?

Trade ETFs with Xtrade



An ETF is a financial instrument which tracks the performance of an existing market/s. There are two ways that Exchange Traded Funds operate: they can either purchase the assets that they are tracking, or they can assume the form of a derivative financial instrument which mimics the performance of the underlying financial instruments. Just like stocks, ETFs are traded (bought and sold) on a stock exchange. Similar to trusts, exchange traded products, and indices, ETFs are designed to track basket a financial instruments.

As a new trader, or an experienced trader, it's always a good idea to diversify your portfolio with ETFs. These financial instruments are traded all over the world at centralised exchanges. There are many different types of ETFs, such as fixed-income ETFs, niche ETFs, and diversified passive equity ETFs. At Xtrade.net, you are welcome to trade our selection of ETFs. There are plenty of stocks, and/or bonds included in ETFs, since they are traded at stock exchanges like the LSE, NYSE, NASDAQ, and others. It may sound complicated, but ETFs are traded much like stocks.

At Xtrade.net, we offer ETF CFDs. These are derivative instruments which track the performance of the underlying ETF, without actually investing in the stocks, bonds, commodities, or indices that make up the ETF. Put simply, you are trading a contract which mirrors the performance of the ETF. A CFD is a contract between trader and broker to exchange the value of the contract between the time it is bought and sold.

Traders and investors are increasingly drawn to ETFs because they tend to be more stable than individual stocks, commodities, indices, or bonds. With an ETF, you are investing in a basket of related instruments. If one component of your ETF falters, it won’t ruin the entire ETF. You have complete transparency with ETFs, and you don't even need to take an active role in managing any of the components of the fund – it's all done by the fund manager.

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How Do ETF CFDs Work?




With any CFD, a trader has two options. You can adopt a bullish perspective and go long on the CFD, or you can adopt a bearish perspective and go short on the CFD. When you go long, you buy the ETF CFD. When you go short, you sell the ETF CFD. As an example, assume that you are interested in USO Oil Fund - a popular ETF in the Middle East. If you anticipate a surge in demand, you buy the USO Oil Fund ETF CFD. If you expect a drop in demand, you sell the USO Oil Fund ETF CFD. The accuracy of your forecast determines the profitability that you can expect when trades move in your favour. You can also learn about shares.

It is good practice to use technical and fundamental analysis in all of your forecasting activities. With ETF CFDs, you don't have to deposit the full value of the trade up front. Xtrade.net offers you generous leverage on indices ETFs and commodities ETFs. Leverage is essentially increased buying power for every US $1 in your account. Our range of ETFs CFDs includes the following:

Indices ETF CFDs

  • MSCI Brazil
  • Direxion Small Cap Bear
  • UltraShort S&P 500
  • Direxion Financial Bear

Commodities ETF CFDs

  • USO-Oil Fund

The USO-Oil Fund is offered with leverage of 50:1. This means that every US $100 of your capital has the potential to trade US $5000 worth of USO-Oil Fund ETF CFDs. However, different ETF CFDs such as the MSCI Brazil ETF CFD are offered with leverage of 10:1. Select the ETF CFD that best matches your needs, vis-à-vis leverage and your available capital. In the next section, we will take a look at the many benefits of trading ETF CFDs.



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Why Trade ETF CFDs with Xtrade.net?

If you trade on a centralised exchange, you have to front the full value of every trade you make. To generate a profit, the underlying financial instrument must appreciate in value. If the prices of the constituent components of your ETF decrease, the ETF will depreciate in value. Fortunately, ETFs CFDs don't necessarily work that way. You can trade ETF CFDs in rising and falling markets. The global economy doesn't need to be booming for you to generate a profit with ETF CFDs. There is negligible inflation-related risk with ETF CFDs too, since these are short-term financial instruments.

Read all the available literature on your chosen ETF, using a combination of technical and fundamental analysis to make your decisions. With a relatively low margin requirement, you can use your available capital to open many trades. This prevents asset concentration, and the attendant risks. Another benefit of ETF CFDs is hedging. If you are already invested in the stock markets with an ETF, you can trade ETF CFDs in the opposite direction to hedge against unfavourable price movements.



What are the Risks of Trading ETF CFDs?

Whenever you use margin and leverage in trading, there is an increased risk of loss. CFDs are naturally high-risk financial instruments. Even with careful research and analysis, nobody can predict the financial markets with 100% certainty at any given time. CFD prices can whipsaw wildly – this makes them unsuitable to many traders. With CFD trading, you are liable for the full value of the trade, not simply the margin. This means that you can lose significantly more than the capital invested in any given trade. Trade with caution.

List of ETFs

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Trading CFDs involves significant risk of loss. Trading FX/CFDs involves a significant level of risk and you may lose all of your invested capital. Please ensure that you understand the risks involved.