What are the most volatile ETFs to trade?

How to start trading ETFs

An exchange traded fund (ETF) is a financial instrument that tracks the performance of a basket of assets. The underlying asset that determines the value and performance of the ETF can vary and allows investors to take a position on everything from a group of equities, forex or commodities.

Suggested steps to start trading ETFs:

• Understand what an ETF is and how to trade them
• You can read more about how to choose the right ETF here
• Start searching for the ideal one using the IG ETF Screener

Once you are comfortable with trading ETFs, you can either test out your strategy using an IG demo account or jump straight in and place your first trade by opening an IG live account.

You can also take a position on ETFs over the long term by using our investment service. Keep your costs down, with zero commission on US shares, and just £3 on UK shares.

Day trading ETFs: strategies for day trading

ETFs are also popular among day traders that buy and sell financial instruments within a single trading day. They close out positions before the end of each day and start again the following day.

The idea is to take advantage of small price movements as you are limited to one day. With this in mind, day traders will be particularly interested in finding the most volatile ETFs available as this maximises the potential returns on offer. You can read more about day trading and the best strategies for beginners here.

Most volatile leveraged ETFs

Leveraged ETFs will always be among the most volatile ETFs in the market. This is because they use financial derivatives and/or debt to amplify the performance of the underlying asset, some as much as 5x. This could mean a £1 movement in the FTSE 100 would translate to a £5 movement – up or down – to an ETF that is tracking it. This adds to both the risk and the reward on offer.

Learn more about leveraged ETFs

Below is a table of the top 20 most volatile leveraged ETFs based on the standard deviation of the share price for the previous 360 days to 19 May 2020. There are some common themes to point out, such as the number tracking the price of natural gas or WTI crude oil.

Energy prices have been on a roller coaster ride of late thanks to the coronavirus wiping out demand in an already over-supplied market, and oil prices crashed to new lows. The other most volatile ETFs have been tracking the Euro STOXX 50, German DAX and the S&P 500.

It is also worth highlighting inverse ETFs. Inverse ETFs are funds that move in the opposite direction to the underlying asset. So any movement that the asset makes, the inverse ETF does the opposite. This means there are ETFs available for both those who want to go long or short, and why there are some similar ETFs in the below table with some tracking the ‘daily long’ performance and others tracking the ‘daily short’.

^{Source: Bloomberg}

Most volatile non-leveraged ETFs

Unlike leveraged ETFs that try to amplify the performance of their underlying assets, non-leveraged ETFs simply try to track the performance of the underlying asset as closely as possible.

This means they are not as volatile as leveraged ones, but they can still prove volatile enough to provide trading opportunities – and at a lower risk than leveraged ETFs. The below table is based on the standard deviation of the share price for the previous 360 days.

Again, ETFs tracking energy commodities have been among the most volatile, including ones like the SPDR World Energy ETF that follows the performance of major oil companies or infrastructure providers. The VanEck Junior Gold Miners ETF, which tracks small gold mining stocks, also makes the list as do two ETFs tracking the price of palladium.

Outside of that, there are some country-specific ETFs to watch, such as the iShares MSCI South Africa ETF that tracks South African equities and the HSBC MSCI Brazil UCITS that does the same in Brazil.