What is an ETF?
An ETF is an investment fund that’s traded on a stock exchange, much like a common stock. ETFs are generally designed to track the performance of an underlying benchmark index, such as the S&P 500. They track the underlying by holding a basket of related securities, which will closely match the holdings of the benchmark index. For example, an ETF tracking the S&P 500, could invest in the 500 companies constituting the index, in similar weightings. This is known as physical replication, which means that the ETF provider owns the underlying physical assets. However, some newer ETFs also track derivative products such as VIX index derivatives or futures contracts, and some ETFs even apply leveraging and inverse payoffs of the underlying benchmark.
What ETFs can you trade in SaxoTraderGO?
In SaxoTraderGO, you can trade traditional, leveraged and inverse ETFs tracking a diverse range of instruments, including equity indices, equities, commodities and bonds.
The traditional ETF is the most common of the three different ETF types, and tracks an underlying index on a one-to-one basis, just like a direct equity position. The world´s largest and most liquid traditional ETF is SPDR S&P 500 ETF Trust (SPY), which is designed to track the S&P500 index (SPX). The chart below illustrates how the returns for both the S&P500 (orange line) and the SPY ETF (blue line) developed in the last five years.