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Find out how exchange traded products (ETPs) combine the best qualities of various investment vehicles. Learn about the different types of ETPs and the diverse range of markets you can trade on.
|What is an ETP?||Types of ETP||Trading ETPs||Benefits and ways to trade|
|Introduction to ETPsWhat do ETPs do?How do ETPs work?Understanding ETPsGrowth of ETPs||Exchange Traded Funds (ETFs)Exchange Traded Commodities (ETCs)Summary of ETP types||Who trades ETPs?How to tradeTrade on marginCosts and pricing||Benefits of ETP tradingWays to trade ETPs|
ETPs are not to everyone’s taste, and do not suit all investment strategies, but they can offer an attractive alternative to various more-established investment vehicles.
Here we list a selection of advantages that ETPs enjoy:
An ETP combines what would otherwise be several trades on various individual assets into a single transaction.
This makes it easier to target a particular price for the basket of assets you are interested in, and cuts commission fees because you are only charged for a single transaction rather than for every individual asset.
Continuous pricing is one of the key differences between ETPs and funds, which are priced on a daily basis according to their net asset value (NAV).
The ability to trade at any time during market hours makes it much easier for you to target a particular price. On popularly traded ETPs, the deviation between the daily closing price and the combined NAV of the constituent parts is typically less than 2%.
In some cases, ETPs represent the only way to gain exposure to certain underlying markets.
These may be so obscure that they are not available by traditional trading means, eg exotic shares and indices.
As well as saving on commission charges, ETPs are more cost-effective than other instruments in a number of other ways.
For example, in the UK there are no load costs or stamp duty fees on ETPs, and management fees are generally accepted to be lower than those on funds.
ETPs are traded on exchange, in much the same way as individual shares.
Therefore, as with shares, investors can sell short, buy on margin and use stop-loss and limit orders.
There is also no minimum amount required to invest.
As well as the clarity of continuous price updates throughout the day, ETP providers publish the constituents of their funds on a daily basis.
ETPs offer real diversity in their ability to track a basket of assets in a single transaction.
This basket may contain similar products, eg energies, or potentially more varied products, eg an index of emerging markets.
You may benefit from tax advantages depending on the country in which you are trading.
For example, with funds and index trackers in the UK, capital gains are taxed as soon as any profit is made on any asset included in the fund. These can add up.
With ETPs, capital gains are only realised at the sale of the entire ETP, and are therefore only taxed together once. This can translate into a significant tax benefit.
Please check your local tax laws to find out which apply to you.
By trading ETFs as a CFD with IG, you can gain exposure to the market at a fraction of the cost of owning the underlying assets. The idea is that you agree to exchange the difference in value of a particular ETF between the time you open your position and the time you close it.
You’ll generally be able to use your CFD trading account to trade on a range of other markets such as forex, indices and commodities, as well as ETFs.
Visit our CFDs section to find out more.
To buy or sell ETPs, you’ll need a stock broker to act as the middleman between you and the stock exchange.
You can find out more about the different types of service available from a stock broker in our shares module.