Exchange Traded Funds, abbreviated ETF , also called Trackers are financial instruments used for stock market investment. Still called trackers , exchange traded funds entered the financial market in the 1990s. They are accessible and optimal investments that offer exclusive privileges to investors. But how to invest in ETFs .
How to Invest in ETFs? 4 Simple Steps
Investing in an index fund is not just for experts. Indeed, even novice traders can place their funds in trackers thanks to stock brokers. Here is a summary of the steps to follow to invest in an index fund, whatever your level:
Continue reading this article to find out in detail how to get started.
Investing in ETFs: Complete Tutorial
Hundreds of online brokers are available to assist you in investing in ETFs. How do you navigate the plethora of offers on the market, and which broker provides the best way to invest in trackers easily for a newbie trader?
After analyzing a good number of current offers, we found that the broker eToro is the best, given its impressive advantages in this area. Here is the complete tutorial for investing in an index fund with eToro .
Step 1: Create an Account on eToro
To invest in exchange traded funds, the first step is to register with eToro by following this link. The registration process is simple and it only takes a few minutes.
Go to the official eToro website and click on ' Register '. Subsequently, you will need to complete the registration form indicating the following personal data:
After completing the registration page, you must agree to eToro's terms and conditions by checking the appropriate box at the bottom of the form. Then please click on ' Create an account '.
Step 2: Verify your Identity
After creating your account, the next step is to verify your account. To do this, please click on 'Complete my profile'. Then the eToro team will ask you security questions to which you must provide exact answers.
The verification of your identity also involves sending two supporting documents:
Identity document (national identity card, driving license, passport)
Proof of address (bank statement, water / gas / electricity bill)
Step 3: Fund your Account
Before embarking on investing in ETFs, your eToro account should be supplied with funds. Once your account is validated, you need to deposit the funds and choose a payment method.
The eToro broker offers a variety of payment methods. You will be able to pay your first deposit via bank transfer, credit card, PayPal, or via several electronic wallets.
To fund your account, please click on ' Deposit funds ', then indicate the amount to be deposited and finally click on ' Submit '.
Good to know: on eToro, the minimum deposit amount is 200 dollars. We recommend that you stick to this amount at first, especially if you are a beginner. Also make sure that you can bear this sum and assume the potential loss.
Step 4: Choose Preferred ETF Trackers
As soon as you finish crediting your account, you can already invest in an index fund. Simply browse through eToro's 151 trackers and select the ETF of your choice.
Finally, when you are ready, please click on ' Buy ' to complete the purchase of the ETF of your choice.
Investing ETFs: Best Brokers for Trackers
We analyzed the functionalities and management fees of more than fifty online brokers. Based on our test, we selected three tracker trading sites that offer more competitive deals and management fees. It is up to you to choose the one that matches your trader profile.
Here are the top 5 best brokers to invest in ETFs in 2021
Trackers are available on various stock brokers . With the panoply of criteria for choosing one of the best ETF stock brokers , it will not always be easy to find a broker who meets your trading needs. Nevertheless, you can trust the following brokers, which have all the characteristics of a reliable ETF broker:
There are some essential aspects to consider in finding the best online stock market site. Let's see what it is for these 5 brokers.
1.eToro: Broker Leader for Investing in ETFs with Social Trading
eToro is arguably the best broker for trackers in 2021 . Created in 2006 in Tel Aviv, Israel, eToro is a broker regulated by several financial organizations in Europe and internationally. Its activities are controlled by the following financial institutions: CySEC in Cyprus, ASIC in Italy, FinCEN in the United States of America and FCA in the United Kingdom.
With more than 10 million clients worldwide, this online broker allows you to invest in the stock market with 0% commissions and in ETF trackers. There are no less than 151 ETFs on the trading site . What's more, it offers an ergonomic, user-friendly and easy-to-use interface for novice traders. Enough to get started in investing in trackers with ease.
eToro also became the first stock broker to integrate the social trading network into its trading community. The Copy Trading allows investors less posh to model the positions of traders professionals. It is about harnessing the experience of successful stock market traders.
- Benefits of the eToro ETF Broker
- Disadvantages
- Lack of advanced trading tools
- Withdrawal fees of $ 5 on all transactions
2. AvaTrade: an ETF Broker with Advanced Tools
AvaTrade is an online broker in existence since 2006. It offers trading solutions to 200,000 clients in over 40 countries around the world. Among the characteristics of this broker, we can mention its wide range of financial products . From cryptocurrencies to bonds to currencies, the choice is immense.
By registering on AvaTrade, over 20 ETFs are at your fingertips. It includes, among many others, the Dow-Jones US Real Estate Index Fund ETF, the Daily S&P 500 Bear 1X Shares ETF and the Energy Select Sector SPDR ETF. But beware: you will always trade them in CFDs on this platform. Finally, note that the maximum leverage for these trackers is 5: 1.
In addition, AvaTrade is ideal for taking advantage of advanced trading tools. Thus, you will be able to use there MT4 and MT5 in particular , which allow a fine and precise analysis of the financial markets.
You can also create Expert Advisor who can help you in your trading strategy, provided you master the programming languages MQL4 and MQL5. This is why AvaTrade is therefore suitable above all for experienced traders.
- Advantages of the AvaTrade ETF Broker
- Strong range of platforms offered: MetaTrader 4, MetaTrader 5, AvaTradeGo and AvaOptions
- Responsive customer service
- Lots of financial assets available
- Platform security
- Disadvantages
3. Libertex: an Online Broker with Over 20 Years of Experience
Libertex is an online broker controlled by a reputable banking institution, namely CySEC. Currently, the trading platform operates in 110 countries around the world, with over 2 million clients. Liberty Exchange is one of the most experienced brokers, with over 20 years of experience in the field.
By registering on Libertex, you have the opportunity to trade on nearly ten ETFs, including several iShares ETFs, Vanguard FTSE Europe and SPDR S&P 500 ETF Trust.
This online brokerage site is suitable for beginner traders, if we stick to its comprehensive training offer. Not to mention the experts who want to improve their trading experience.
In addition, Libertex offers two trading platforms (Libertex and MetaTrader 4) to facilitate the placing of orders. You will also find a mobile platform that allows you to trade ETFs on the go.
Advantages of the Libertex ETF Broker
Disadvantages
4. Alvexo: 5 Accounts for Trading ETFs
Alvexo is an online brokerage controlled by CySec in Cyprus. He is particularly known for his wide range of financial assets and his training to learn trading through his Alvexo Plus.
By registering on Alvexo, you have the possibility to trade ETFs including:
iShares High Yield Corporate Bond (HYG)
iShares Investment Grade Corporate Bond (LQD)
ETFMG Alternative Harvest (MJX).
iShares Russell 2000 (IWM)
Another interesting feature of this broker: its diversity of accounts. You can choose from a Standard, Gold, Premium, ECN Platinum and ECN Elite account.
Management fees on ETFs vary from account to account, but will generally be higher on both ECN accounts.
- Benefits of the Alvexo ETF Broker
- Regulation with CySec
- Competitive spreads
- Ergonomic platform
- Wide range of financial assets
- Alvexo Plus to learn trading
- Efficient and comprehensive customer service
- No withdrawal fees
- Disadvantages
5. Saxo Bank: Best for its Varied Range of ETF Funds
Saxo Bank is a Danish bank that offers brokerage services and more specifically the trading of ETF trackers. Today, the online broker has more than 800,000 users spread across more than 20 countries around the world. This trading platform enjoys a no less negligible notoriety in the trading world.
Saxo Bank's offer is very rich in terms of investment funds. To be convinced of this, we have counted more than 3000 ETF trackers available on this trading platform.
Finally, Saxo Bank regularly organizes webinars to improve the trading strategies of new investors. The broker also offers two trading platforms, namely SaxoTraderGo and SaxoTraderPRO .
Benefits of the Saxo Bank ETF broker
Two reliable trading platforms: SaxoTraderGo and SaxoTraderPRO
Over 3,000 Exchange Traded Funds
Relatively low brokerage fees on certain stock market products
Information-rich FAQ
Disadvantages
What are ETFs?
Really, what are ETFs? From its Anglo-Saxon etymology Exchanged Traded Funds and translation Exchange Traded Funds, an ETF is an interesting stock market investment for investors. What is it exactly?
Definition of ETF Trackers
Tersely, an ETF is a publicly traded fund . It is clearly an index fund that replicates the performance of a stock market index such as the largest indices (CAC 40, MSCI WORLD, Dow Jones, S&P 500).
ETFs, also called trackers, can allow you to invest in the stock market over the long term, because they are easier to use with negligible annual management fees.
By way of illustration, a CAC 40 ETF makes it possible to invest simultaneously and instantly in all the large CAC 40 companies. The stock market tracker is rightly perceived as a passive investment .
No need to try to beat the market in the long term, you can in the short term maybe, but it is easier to choose ETFs well and let them run for 5 years or even 10 years.
Trackers are issued by the largest management companies such as ETF Lyxor approved by financial organizations such as the AMF (Autorité des Marchés Financiers). For example, Euronext offers nearly 750 exchange traded funds. And stock exchanges are responsible for verifying orders to buy or sell ETFs. How ETFs Work
ETF, How does it work? Concrete example
In order to better understand how ETFs work, we will start by explaining how an ETF replicates a benchmark index like the CAC 40. This ETF, like the LYXOR ETF CAC 40 for example, replicates the performance of the most popular stock market index. large market capitalizations of the Place de Paris.
ETFs or exchange traded funds can replicate the performance of an index either by physical or synthetic replication, the difference between the two, to put it simply is that for physical replication, the investment fund buys all the major component companies of the index. '' a stock market index, and for synthetic replication, major issuers use derivatives to track the performance of an index
Like the lyxor etf and Amundi etf, the Euro Stoxx 50 Ucits ETF investment fund will replicate the price movements of the Euro Stoxx 50. This means that it will monitor the performance of all the large companies of the euro zone.
From then on, you can buy all the shares issued by the EuroStoxx 50 companies at once, from a single source. It is an excellent stock market investment for diversifying your portfolio, without having to buy a large number of individual stocks, one at a time.
To get you started in investments of this type, the broker eToro offers one of the most intuitive and efficient platforms on the market.
The Different Types of Trackers
We distinguish 5 categories of trackers available on the market. We can cite, among others, geographic ETFs, stock ETFs, bond ETFs and sector ETFs. Full details are below.
Geographic ETFs
Geographic ETFs are index funds issued by management companies in the same geographic area. To invest in the stock market, you must then target a single tracker in a country or region.
In reality, these types of financial markets give you direct access to major stock exchanges.
For example, you can invest in exchange traded funds in countries from the following geographic areas: Europe, America, Asia.
When the tracked index is a commodity, it is referred to as a commodity ETF .
This type of tracker is advantageous because you can invest in a wide range of commodities. It can be, among other things, base or precious metals, agricultural products, energies ...
Why Invest in ETF Trackers?
Since 2007, trackers have grown exponentially. Investors pay particular attention to index funds. Why should you invest in ETFs ? There are plenty of reasons. Here are a few.
A Way to Save Time and Invest for the Long Term
As a passive indicator, the tracker requires little energy . First, you don't need to spend all of your time investing in ETFs.
Second, replicating a set of index funds saves time. The ETF tracker is rightly viewed as a long-term investment option.
An Easy Product to Buy and Sell
Unlike some financial assets, ETF trackers are liquid and available on the stock markets. More so, they are always quoted and their costs are readable in the market.
An Easy-to-Use Instrument
No need to work miracles to invest in the stock market with ETFs. You can easily buy and sell ETFs during the trading session. Also, it should be noted that the investor can profit from ETFs whether they are in a downward or upward trend.
A Way to Maximize Yield
If you want to diversify your investment portfolio, ETFs are still a good option. By replicating the performance of multiple companies, you circumvent the negative effects that can impact a single company.
Risk management undoubtedly makes it possible to maximize the profitability of the investor's portfolio
With a PEA-eligible ETF or life insurance, the tax advantages must be taken into consideration.
A solution to invest at a lower cost
Investors prefer to trade ETF trackers, because it does not require large funds. Truth be told, trading costs are accessible to any type of profile. Entry and custody fees are lower compared to the underlying index.
Moreover, the management fees of an ETF oscillate between 0.02 and 0.5% . In the first quarter of 2020, Trackinsight raised the following annual fees for large ETFs:
0.05% for HSBC EURO STOXX 50 UCITS ETF, Lyxor Smart Overnight Return UCITS ETF and Invesco S&P 500 UCITS ETF
0.04% for Lyxor Core Morningstar US (DR) UCITS ETF
How Much Can You Earn With ETFs?
If there is one question that haunts the minds of investors, it is how much does investing in ETFs earn? It is not easy to determine the gains associated with trading ETFs. Several factors come into play when investing in the stock market with ETFs. We can cite among others the Tracking Difference , the value of the underlying index, brokerage fees, risk management and investment capital.
To help you identify possible returns on investment (ROI) , we offer you the recent achievements of certain funds traded on the Euronext Paris stock exchange.
ROIs with ETFs: Growing Liquidity
Here is an explanatory table of the evolution in liquidity of the major market trackers, between 2018 and 2020. Undeniably, liquidity increased over this period for all indices:
Trackers: Solid Performances For 10 Years
Here is another recap, concerning him the average annual performances during the last 10 years.
We can see that the earnings reported by trackers over 10 years vary from one sector, one zone and one year to another. But the minimum required to invest is 5 years.
However, it can be clearly seen that ETFs continue to yield year after year. By adopting a long-term investment strategy, over the years you may see these traded funds grow.
Investing in ETFs For Beginners: Our Tips
When asked how to invest in ETFs successfully, we have selected some recommendations necessary to trade optimally.
1 - Fulfill the Conditions for Investing in ETFs
One of the prerequisites for investing in exchange traded funds is to be the holder of a CTO ( ordinary securities account ), a PEA ( Plan d'Epargne en Actions ) or take out life insurance. .
You must choose an ETF that is eligible for pea, these are often ETFs that end in ucits etf eur, for life insurance, banks and any management company like Lyxor, amundi ... offers ETFs in life insurance.
There is also the pea pme for ETFs that track a benchmark index of small and medium-sized companies.
Good to know: If you opt for the PEA, to invest in trackers you will have to devote more than 75% of your investment to shares of European companies or those belonging to the European economic area.
As a reminder, the choice of an account is made according to your investment objectives and the taxation in force. To do this, your means must match your savings goals.
2 - Choose a Reliable Online Broker Like eToro
To buy or sell an ETF , you must open an account on an online brokerage site. At this level, we recommend that you choose eToro , considered to be the pioneer of brokers.
Why should you choose eToro? This broker is suitable for novice traders, because of its competitive offers in the ETF tracker market . Moreover, the broker does not take any commission on trading stocks and ETFs. Also, he is the first to offer copy trading and leverage trading .
3 - Choose an ETF Management Company
Before you start investing in ETFs, it is important to select an active ETF issuer. In addition, you need to inquire about the conditions of purchase and sale of the ETF, the risk management and management fees related thereto.
Lyxor ETF and Amundi ETF .
What are the Risks Associated with ETF Trackers?
Before investing in ETFs, be aware that trading in the stock market involves risk. Here are some possible risks in trading Exchange Traded Funds.
A risk of loss of capital
As with any trading instrument, loss is the fundamental risk when investing in ETF trackers. It is the result of the change in the benchmark . This means that the invested capital risks being lost when the underlying index falls. In other words, the index decline affects your portfolio in the same proportions.
The basic rule for trackers is the same as for any type of investment; spend only the amount you are prepared to lose.
Beware of Tracking Error Incidents
The tracking error comes when the ETF or index fund grows faster than its benchmark. That is to say that if the performance of the underlying index drops, your earnings will be lower.
Although it is relatively rare, this type of mistake can cost you dearly and can quickly put your invested funds at risk. This is one of the risks that you must be aware of before embarking, in order to avoid unpleasant surprises.
ETFs listed in foreign currencies and currency risk
This is a possible loss for ETFs denominated in foreign currencies . It is clear that the variation in the currency in which your ETF is expressed can impact your trading session. If suddenly, the dollar or the British pound undergoes a devaluation, and your trackers are in these currencies, your capital may also suffer a devaluation.
In recent years, several US and London based ETFs have become PEA eligible, and after March 2021 investors flocked to ETFs after the covid crisis.
Conclusion: Should we invest in ETFs in 2021?
Trackers are a good investment option to diversify your portfolio. They are potentially advantageous investments in terms of long-term stock market return and at reduced costs . You have every reason to believe in this passive investment which allows you to save time.
However, we recognize that the stock market is risky, and Exchange Traded Funds are not immune to loss of money. This may be due either to the tracking error or to the variation of the replicated Bouriser index or of the foreign currency .
Tracking error is often a difference between the performance of the stock market index and the performance of the index fund, since this etf also has fees for replicating the stock index.
If you meet all the prerequisites to invest in ETFs, we recommend the broker eToro with its panoply of privileges and options to invest easily through copy trading.
Disclaimer: Every trading operation has a risk. We cannot offer any guarantee of profit. All content on our website is for informational purposes only and does not constitute a recommendation to buy or sell. This applies to assets as well as products, services and other investments. The opinions communicated on this page do not constitute investment advice and independent financial advice should be sought where possible.