Exchange-traded funds (ETFs) have exploded in popularity over the last decade, offering traders an efficient way to gain exposure to markets at a low cost. While the most popular ETFs track major indexes, further exploration reveals a diverse world of specialised ETFs catering to specific sectors, factors, and trading strategies.
Much like flavours at an ice cream shop, ETFs come in many varieties — from conservative vanilla index funds to more adventurous rocky road sector stakes. Whether you crave stability, growth, or something in between, the ETF menu has options to satisfy your trading appetite.
In this beginner's guide, we'll explore the major ETF categories, including stock, bond, commodity, and more. You'll learn the distinguishing features of each type, their typical holdings, and the role they can play in a trader’s portfolio.
The different types of ETFs
- Stock or Equity ETFs: Stock ETFs are funds that hold baskets of stocks that mimic various stock market indexes. Stock ETFs allow traders to gain exposure to a diverse collection of equities in a single purchase.
Stock ETFs like VOO and IVV can provide long-term CFD trading exposure to a selection of stocks from the S&P 500 in proportions that aim to mimic the index's performance. These are considered some of the best ETFs for long-term global ETF index tracking.
- Sector and Industry ETFs: Sector and industry ETFs, like those on Deriv, provide targeted exposure to specific market segments compared to broader market ETFs. They allow tactical stakes based on economic and market analysis.
For example, Deriv offers ARKK.arcx. The ARK Innovation ETF buys domestic and foreign equity securities of companies that are expected to benefit from developments in artificial intelligence, automation, DNA technologies, energy storage, fintech, and robotics.
- Bond ETFs: Bond ETFs track a specific bond market index. These are traded on stock exchanges like individual stocks, which makes them a liquid and accessible option.
Popular options include the iShares Core US Aggregate Bond ETF (AGG) for US bonds and the iShares iBoxx High Yield Corporate Bond ETF (HYG) for corporate bonds.
These examples are useful CFD trading tools for accessing the bond markets. Their diversified baskets of securities make them potentially suitable options for long-term trading strategies.
- Style ETFs: Style ETFs track indexes of stocks filtered by specific characteristics like market capitalisation, value, growth, and dividend yield.
Value ETFs like IVE and VTV buy stocks that appear underpriced by the market based on metrics like price-to-earnings and price-to-book ratios.
Growth ETFs like IVW and VUG buy stocks with strong earnings and revenue growth.
- Commodity ETFs: Commodity ETFs hold futures contracts for individual natural resources like oil, gold, or silver.
For instance, commodities ETFs like GLD can bring CFD trading exposure to gold and other resources. Traders sometimes use these for short-term CFDs, while others hold them long term.
- Volatility ETFs: Volatility ETFs are exchange-traded funds that provide exposure to market volatility through the use of various derivative strategies.
Unlike traditional ETFs that simply track an index, volatility ETFs aim to allow traders to speculate on or hedge against fluctuations in the overall volatility of the market. They attempt to profit from volatility increases and declines as a trading vehicle.
Here is an overview of these major ETF categories, their distinguishing features, typical holdings, and their role in a trader's portfolio:
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With their diversity of exposures and strategies, ETFs offer traders an extensive menu to customise their trading portfolios. Whether you prefer simplicity or specificity, passive indexing or active speculation, ETFs offer something for every portfolio strategy and risk tolerance. By understanding the diversity of the ETF landscape, you can thoughtfully select exposures to suit your trading goals and appetite.
Open a demo or real trading account on Deriv and check out our suite of ETF offerings. Practise with virtual funds in a demo account, or start trading ETFs with real money and take advantage of the opportunities ETF trading offers.
Disclaimer:
This information is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.
Certain products may not be available in your country.
The information contained within this blog article is for educational purposes only and is not intended as financial or investment advice.
Trading is risky. Past performance is not indicative of future results. It is recommended to do your own research prior to making any trading decisions.
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