Exchange-traded funds (ETFs) are a form of investment fund traded on global stock exchanges. They are similar to mutual funds, which are investment funds managed by professionals who pool capital from investors to buy securities. The difference is ETFs can be bought and sold from other investors throughout the day on stock exchanges. Mutual funds are purchased and sold at their current price at the end of a trading day.

ETFs offer many benefits and are ideal assets for beginner traders. They offer various investment opportunities, diversity, rich liquidity, a low investment entry point and low expense ratios. ETFs can be traded online through reputable brokers via popular trading platforms like MetaTrader 4.

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AvaTrade

Founded 2006

Regulated ASIC, BVI, CBI, CySEC, FSA(JP), FSC, FSCA

Headquarters Dublin, Ireland

Tradeable assets Currencies, commodities, indices, stocks, bonds, ETFs, futures, crypto

Trading platform AvaOptions, AvaSocial, AvaTradeGo, MT4, MT5

Trading desk Market Maker

Minimum deposit $100

VISIT BROKER

AvaTrade is an award-winning global forex and CFDs broker who accepts traders in Africa. Established in 2006, AvaTrade is well-established and has a solid reputation for being regulatory compliant and safe to use by traders worldwide. AvaTrade offers access to various financial instruments on multiple trading platforms, including MT4, MT5 and AvaTrade proprietary trading platforms. AvaTrade is licensed and regulated by top-tier regulatory authorities across all six continents, including the FCA in the UK, ASIC in Australia and FSCA in South Africa.

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Registered 2012

Regulated CySEC Cyprus, FSA Seychelles, FSC Mauritius, BaFin Germany

Headquarters Limassol, Cyprus

Tradeable assets Forex, commodities, shares, indices, cryptocurrencies

Trading platform MT4, MT5, BDSwiss WebTrader

Minimum deposit $100

VISIT BROKER

BDSwiss is an award-winning global forex and CFDs broker that was established in 2012. The brokerage offers world-leading platforms to trade currency pairs, commodities, shares, indices and cryptocurrencies. BDSwiss is a registered tradename of BDSwiss Holding Ltd, licensed and regulated by multiple top-tier authorities, including the CySEC in Cyprus, FSA in Seychelles and FSC in Mauritius. BDSwiss offers competitive pricing and an excellent trading environment for all types of traders. BDSwiss is a regulatory compliant broker and a safe and reliable option for forex traders in Africa.

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Blackstone Futures

Founded 2009

Regulated FSCA, FCA, ASIC, SCB

Headquarters South Africa

Tradeable assets Currencies, commodities, indices, stocks, bonds, ETFs, futures, crypto

Trading platform MT4, CloudTrade

Trading desk STP

Minimum deposit $100

VISIT BROKER

Blackstone Futures is a multi-asset South African-based forex and CFDs broker founded in 2009. Clients trade forex and CFDs on commodities, cryptocurrencies, equities, energies, precious metals, futures and indices using the MetaTrader 4 platform and a proprietary trading platform called CloudTrade. Blackstone Futures is a duly-appointed representative of Trade National Financial (Pty) Limited. Trade National Financial is the trading name of Finsa Europe Ltd, licensed and regulated by the FSCA in South Africa, FCA in the United Kingdom, ASIC in Australia, and SCB in the Bahamas.

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CMC Markets

Founded 1989

Regulated ASIC, FCA

Headquarters United Kingdom

Tradeable assets Currencies, commodities, indices, stocks, bonds, ETFs, futures, crypto

Trading platform CMC Web Platform

Trading desk Dealing Desk, Market Maker

Minimum deposit $0

VISIT BROKER

CMC Markets is a leading forex and CFDs broker that was established in 1989. With over three decades of experience, CMC Markets offers forex traders in Africa an excellent trading experience, providing access to multiple assets with competitive spreads. The global broker supports the world’s favourite MetaTrader 4 trading platform and Next Generation, an award-winning proprietary platform, to trade currency pairs and CFDs on indices, cryptocurrencies, commodities, shares and treasuries. CMC Markets is regulated by the FCA in the United Kingdom and is a safe and dependable broker for forex traders in Africa.

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Exness

Founded 2008

Regulated CySEC, FCA, FSA(SC), FSCA

Headquarters Cyprus

Tradeable assets Currencies, commodities, indices, stocks, ETFs, crypto

Trading platform MT4, MT5

Trading desk Market Maker, NDD

Minimum deposit $10

VISIT BROKER

Exness is a leading forex and CFDs broker that accepts traders in Africa. The award-winning fintech company was founded in 2008 and is licensed and regulated by top-tier authorities, including the FCA, CySEC, FSCA and FSA. Exness is a Market Maker and NDD broker and provides online to multiple asset classes on the MT4 and MT5 trading platforms and a proprietary Web Terminal.

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fpmarkets

Founded 2005

Regulated ASIC, CySEC

Headquarters Australia

Tradeable assets Currencies, commodities, indices, stocks, ETFs, futures, crypto

Trading platform IRESS, MT4, MT5, WebTrader

Trading desk No dealing desk (NDD)

Minimum deposit $100

VISIT BROKER

First Prudential Markets Ltd – trading as fpmarkets – is an Australian-based forex and CFDs broker founded in 2005. The brokerage offers five trading accounts to trade forex and CFDs on stocks, commodities and indices via the MT4 and MT5 trading platforms. fpmarkets is registered in St. Vincent & the Grenadines and is regulated by the ASIC in Australia and CySEC in Cyprus. fpmarkets is regulatory compliant and regarded as safe to use by forex brokers in Africa.

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HotForex

Founded 2010

Regulated CySEC, DFSA, FCA, FSA(SC), FSCA

Headquarters Cyprus

Tradeable assets Currencies, commodities, indices, stocks, bonds, ETFs, futures, crypto

Trading platform MT4, MT5

Trading desk DMA, ECN, STP

Minimum deposit $5

VISIT BROKER

HotForex is a global, multi-regulated forex and CFDs broker that accepts traders in Africa. Founded in 2010, HotForex and HF Markets fall under the HF Markets Groups, which operates in multiple jurisdictions. The brokerage offers access to a wide range of asset classes on the MT4 and MT5 trading platforms with six trading accounts.

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NAGA

Registered 2015

Regulated FCA, CySEC Cyprus

Headquarters Limassol, Cyprus

Tradeable assets Forex, commodities, shares, indices, ETFs, cryptocurrencies

Trading platform MT4, MT5, NAGA Trader

Minimum deposit $250

VISIT BROKER

NAGA is a global fintech company that was established in 2015. NAGA provides a user-friendly Super App with a simple interface to access the global markets and trade forex and CFDs on stocks, commodities and ETFs. NAGA’s core focus is on social trading and offers AutoCopy and NAGA Feed, central hubs for traders and investors to share trading experience and strategies. NAGA is the trade name for NAGA Group AG, based in Germany and publicly listed on the Frankfurt Stock Exchange (FSE). NAGA is authorised and regulated by the FCA in the United Kingdom and CySEC in Cyprus.

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Plus500

Founded 2008

Regulated ASIC, CySEC, FCA, FSB, ISA, MAS

Headquarters Israel

Tradeable assets Currencies, commodities, indices, stocks, ETFs, crypto, futures, options

Trading platform Plus500 proprietary

Trading desk No Dealing Desk (NDD)

Minimum deposit $100

VISIT BROKER

Plus500 is a global, multi-regulated forex and CFDs broker that accepts traders in Africa. The brokerage provides access to many asset classes on its Plus500 trading platform, which supports advanced trading tools and customised features for risk management. Founded in 2008, Plus500 is well-established and internationally recognised for being regulatory compliant and safe to use. It is regulated by several top-tier authorities, including the FCA in the UK, which is the leading regulatory authority in the world. Plus500 is a subsidiary of Plus500 Ltd, a publicly-traded company listed on the London Stock Exchange.

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XTB

Founded 2002

Regulated CNMV in Spain, CySEC, FCA, IFSC, KNF

Headquarters Poland

Tradeable assets Currencies, commodities, indices, stocks, bonds, futures, ETFs, crypto

Trading platform MT4, xStation 5

Trading desk MM, STP

Minimum deposit $0

VISIT BROKER

XTB is a global, multi-regulated forex and CFDs broker that accepts traders in Africa. XTB was founded in 2002 and offers access to a wide range of asset classes on the MT4 trading platform. It also has a feature-rich proprietary trading app called XTB xStation, which provides users with access to award-winning analysis and research and XTB Market Sentiment indicators. XTB is licensed and regulated by multiple top-tier authorities, including in the UK, Cyprus, Poland and Spain.

How do ETFs work?

ETFs are publicly-traded securities bought and sold at current market prices via electronic trading platforms through regulated online brokers. ETFs are bought and sold during regular trading hours when stock markets are open, unlike mutual funds traded at the end of the day.

Traders execute ETF trades with limit orders, allowing them to specify the price points they require for their trading strategies. ETFs cover various financial assets, including currencies, commodities, stocks and futures. Most ETFs are index funds made up of stock or bond portfolios that mimic the makeup and performance of a financial market index. The most popular ETFs copy the Nasdaq-100 and S&P 500 Index.

ETFs are traded freely on global stock markets during regular trading hours. You are not locked into a securities investment and can buy and sell ETFs like shares. There is no minimum holding period; you can hold ETFs as long as you like.

Types of ETFs

Investment companies manage most ETFs in the same way as money market funds and mutual funds. They are structured as open-end funds, offering significant flexibility, diversity and affordable investment opportunities for retail traders and investors.

Currency ETFs

Currency ETFs allow traders to invest in or short a basket of currencies or any major currency pair. Currency ETFs are issued by leading financial institutions, such as Deutsche Bank and Invesco. Traders profit from the foreign exchange spot change, receive local institutional interest rates and benefit from a collateral yield.

Commodity ETFs

Commodity ETFs comprise the most significant global commodities, including oil, natural gas, precious metals, hydrocarbons and agricultural products. They are typically structured as exchange-traded grantor trusts, offering direct interest in a fixed portfolio. The industry-standard benchmarks are the S&P GSCI Index, the Bloomberg Commodity Index and DBIQ Optimum Yield Diversified Commodity Index.

Index ETFs

Index ETFs comprise index funds that replicate the performance of a specific index, such as the US100, UK100, S&P 500 Index and the Vanguard Total Stock Market Index Fund. Indexes are typically based on the values of currencies, commodities, stocks or bonds. Index funds either represent one-hundred percent of the contents of an index or a representative sample of securities in the index.

Actively-managed ETFs

Actively managed ETFs are managed by portfolio managers who seek to outperform the global markets. They can be sold short, purchased on margin, are usually transparent and have a tax-efficient structure. Actively managed ETFs are traded more frequently and are less susceptible to front-running, where investors buy and short sell ahead of large sell orders.

Thematic ETFs

Thematic ETFs are marketed on societal trends and focus on long-term gains. Popular themes include climate change, clean energy, shifting consumer behaviours, disruptive technologies, cloud computing, electric vehicles, robotics, artificial intelligence, e-commerce and gig economy.

Inverse ETFs

Inverse ETFs comprise various derivatives, aiming to profit from a decline in the value of the underlying index or benchmark. The inverse practice is similar to holding short positions on underlying assets or profiting from downward price movements. Most Inverse ETFs use daily futures as the underlying benchmark.

Leveraged ETFs

Leveraged ETFs (LETFs) are designed to obtain daily returns two to three times greater than the returns of a corresponding index. They are referred to as bear and bull funds. Leveraged Inverse ETFs do the opposite, attempting to achieve daily returns two to three times lower than the daily index return. Issuers of LETFs use various techniques to achieve results, including derivatives, equity swaps, rebalancing, re-indexing and futures contracts.

Why trade ETFs?

ETFs are convenient financial assets to trade, offering many benefits over growing your mutual fund portfolio one security at a time. ETFs offer trading flexibility, portfolio diversification and lower operating costs. ETFs also provide greater transparency and better tax benefits than conventional open-end funds. The main drawback of ETFs is trading costs.

Flexibility

ETFs are traded throughout the day when the global markets are open, while traditional mutual funds are traded at the trading day’s close. You can capitalise on share pricing movements throughout the day and the intraday value changes of the underlying securities in your fund.

Transparency

ETFs’ gains and losses are easy to track because you know how much you paid for shares in your fund and how much you receive when they are sold. Electronic trading platforms like MetaTrader 4 (MT4) give you a minute-by-minute snapshot view of how your ETFs are performing.

Diversification

ETFs offer greater diversification, and this helps to minimise your investment risks. You can trade in a sector, industry or thematic fund without having any expertise in those areas, meaning you get early exposure in fund categories you might not have considered if you were building your portfolio one security at a time.

ETFs allow you to trade every primary currency, commodity and stock globally. You can buy or sell in volatile market conditions or hold your positions open to ride out the highs and lows. You can also short an industry sector if it poses a significant risk.

Lower operational costs

ETF operational costs are more streamlined than open-end mutual funds, and low client service and fund management costs are passed onto retail traders. ETFs incur nominal expenses in personal contact, monthly statements, annual tax reports and record keeping. Retail traders manage ETFs through an electronic trading platform hosted by a regulated ETFs broker.

Tax-efficiency

The main benefit of ETFs is they are more tax-efficient than mutual funds because they incur nominal capital gains tax and are only payable on the sale of ETFs. Capital gains taxes are paid throughout the investment life of mutual funds.

What assets can you trade as ETFs?

You can trade ETFs on multiple financial assets, including currencies, commodities, equities and bonds.

ETF examples include:

Currency ETFs

Commodity ETFs

Index ETFs

Equity ETFs

Bonds ETFs

How do you trade ETFs?

You can trade ETFs on multiple financial assets by registering with a regulated ETFs broker and opening a live trading account. You can use a free demo account and practice trading ETFs with virtual money until you feel confident trading on a live account with real money.

How long can you hold an ETF position?

ETFs positions do not expire. You can hold them for a short time or as long as you wish. It depends on your trading strategy and if you prefer to hold short or long positions. You can open and close an ETFs position in a few minutes or keep it open for months. There are costs associated with carrying overnight positions which need to be calculated into your ETFs trading strategy.

The issuer may close ETFs if the fund is not attracting enough interest from traders and investors. An ETF closure does not mean the fund has gone bankrupt, merely that investors have lost interest in the fund because they are not making profits or are losing money. The closure may be because the fund has a very narrow focus and investors lose interest in the category, or that sector is not performing well.

What are ETFs risks?

There are various risks associated with trading ETFs on the global markets. The main culprit is market risk, where the trading price moves against your position, and you lose money investing in the fund.

Market risk

Market risk is high because ETF traders pay the difference between the opening and closing price on the underlying asset and risk losing a lot of money if the market goes against them. ETFs traders speculate on the price movements on the global markets, using stop-loss orders to manage their financial risk.

“Too much choice”

Portfolio diversity is a benefit of ETFs, but it also creates a disadvantage for the asset. Traders and investors have a wide choice of ETFs, and technology allows them to swap what they have if the fund is underperforming easily. There are over 1 800 ETFs available to trade across a wide range of sectors.

Counterparty risk

Counterparty risk is high for any over-the-counter (OTC) derivative and relates to the financial solvency or stability of the counterparty. If the counterparty does not meet its financial obligations, your ETF has little to no value. You can incur significant losses even if the underlying asset is not performing well. ETFs are relatively safe from counterparty risk because securities-lending funds are typically over-collateralised and reliable.

Hundreds of ETFs are launched, and just as many shut down every year. It’s not a major crisis if an ETF is shut down because the fund is liquidated, and traders and investors are paid out in cash.

Tax risk

ETFs are tax-efficient in that they incur nominal capital gains tax than mutual funds. However, qualified ETFs are subject to tax, and you can pay up to 28 percent on ETFs profits. Profits made on ETFs are taxed in the same way as underlying stocks and bonds. Different ETFs are subject to different tax rules. ETFs held in a tax-deferred account generally are not taxed until you make a withdrawal. The withdrawal tax is your current ordinary tax rate for personal income.

How much does it cost to trade ETFs?

Brokers charge a commission to trade ETFs because the assets are traded on the global stock exchanges. The commission fee is low because ETFs are not actively managed, and they have low marketing and accounting expenses because trading is done on an electronic trading platform.

ETFs commission fees are built into the spread, so ETFs cost more when you buy them than when you sell them. ETF spreads range from 0.1 to 0.5 percent. The greater the liquidity, the lower the ETF bid-ask spread.

An annual ongoing fee is also deducted from the returns of an ETF, called a Total Expense Ratio (TER). The TER is a measure of the total costs related to managing and operating an investment fund and is low compared to mutual funds, from 0.0% of the value of the ETF.

FOREX TRADING AFRICA DISCLAIMER

Forex and CFDs are complex instruments, and trading these instruments come with a high-risk warning. Trading forex and CFDs involves a high risk of losing money rapidly due to leverage and margin. You need to understand how forex trading works and decide whether you can afford to take the risk of losing money on trade orders that do not go your way.

Forex Trading Africa annually reviews brokers and financial instruments and provides information to help traders and investors make better decisions when trading on global markets. The information is published to help improve your knowledge and understanding of international multi-asset trading and market participants.

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