What is an ETP and how can you trade?
ETPs, or exchange-traded products, are popular among traders because they offer wide exposure across diverse asset classes. Discover different types of ETPs and how you can trade them with us.
What is an ETP?
An ETP (or exchange-traded product) is a tradeable financial instrument that closely tracks an underlying market, such as indices, currencies and shares. They’re derivative securities that work by repackaging the value of an underlying asset and listing it on an exchange to be traded publicly.
As with other derivative instruments, the price of an ETP will change based on fluctuations in the asset it tracks. This means you could potentially profit (or make a loss) on a market, whether it’s rising or falling in value.
Like shares, ETPs are traded on an exchange – such as the London Stock Exchange (LSE) – which usually means they’re only accessible during normal market hours. However, some issuers are beginning to offer round-the-clock trading on a few of these instruments through Multilateral Trading Facilities (MTFs).
Types of exchange-traded products
There are many types of exchange-traded products that traders can access. Here are a few popular ETPs along with a basic definition:
- Exchange-traded funds (ETFs): a form of investment fund that’s bought and sold on stock exchanges. ETFs usually track the performance of a benchmark index and hold assets that help them to do just that
- Exchange-traded notes (ETNs): a type of exchange-traded product that enables you to trade the performance of an index or asset in the form of unsecured debt. This means that the issuer (usually a bank) prices the security based the underlying market it tracks but doesn’t physically own it. Because ETNs are not backed by any collateral, you could lose some or all of your capital should the issuer become unable to honour their debt to you
- Exchange-traded commodities (ETCs): tradeable financial derivatives that track the performance of a commodity, a group of commodities, or a basket of goods through an index. Some ETCs may consist of a swap agreement, which may or may not be secured by collateral. For this reason, some ETCs can be seen as a type of ETN
- Exchange-traded instruments (ETIs): financial securities that normally track an index but can also reflect the value of an actively managed investment portfolio. Note, however, that ‘ETI’ is sometimes used interchangeably with ‘ETP’ to refer to the overall category
- Exchange-traded derivative contracts: financial derivatives that are traded on exchange rather than over the counter (OTC) – such as stock options and currency futures
- Closed-end funds (CEFs): mutual funds that raise capital by issuing a fixed number of shares to be bought and sold on an exchange, but not redeemed.
This means you won’t own shares in the fund but rather you’re trading on the fund’s value with other market participants on an exchange
What are examples of exchange-traded products?
| Exchange-traded funds (ETFs) | The Invesco S&P 500 UCITS ETF is one of the more popular ETPs you can trade on our platform. It tracks the top performing 500 companies listed on the US S&P index |
| Exchange-traded notes (ETNs) | The exchange-traded notes available on our platform, like the Credit Suisse X-Links Silver Shares Covered Call ETN, are tradeable through our CFD trading account |
| Exchange-traded commodities (ETCs) | We offer a range of exchange-traded commodities on our platform, such as the Invesco Physical Gold GBP Hedged ETC. Like the other ETPs listed above, you can trade on these assets with a CFD trading account from us |
| Exchange-traded instruments (ETIs) | As an alternative to getting an actively managed investment portfolio, you can actually trade on the value of a specific diversified portfolio using CFDs. An example of this is the BlackRock ESG Multi-Asset Growth Portfolio UCITS ETF |
| Exchange-traded derivative contracts | With a CFD account from us, you can trade exchange-traded derivative contracts like options and futures – such as the Lyxor S&P 500 VIX Futures Enhanced Roll UCITS ETF - C - EUR |
| Closed-end funds (CEFs) | Like the other ETPs on this list, you can trade on the value of closed-end funds with us – such as the Invesco CEF Income Composite Portfolio. Open a CFD trading account or log in to get started |
ETFs vs ETNs vs ETCs
ETFs, ETNs and ETCs are some of the more popular types of exchange-traded products available on the market. While they may have similarities, there are a few differences to take note of. Below is a basic comparison of the products’ key features.
| ETFs | ETNs | ETCs | |
| Key feature | A tradeable security that holds the asset, group of assets or sector it tracks | A debt security, almost like a bond, issued by a financial institution such as a bank | An exchange-traded security that closely tracks a single commodity, a group of commodities or a basket of goods through an index |
| How to access them with us | CFD trading account | CFD trading account | CFD trading account |
| Pays dividends | No (we make an adjustment on your positions if a dividend is paid in index and share-holding ETFs. Learn more) | No | No |
| Main benefit | Enables you to trade on the value of multiple assets or an entire sector through a single trade, making them more cost-efficient than buying each one individually | Give traders the opportunity to get exposure to important, exotic securities (like currencies) and new markets (like foreign emerging markets) | Traders can buy ETCs to gain wide exposure to a commodity or group of commodities on exchange without needing to trade futures or physically own them |
| Associated risk | Price may diverge from the value of the asset it tracks (known as a tracking error) due to a number of factors, which could affect returns | Because this is a debt security, you may lose the entirety or some of your capital should the issuing entity be unable to pay it at maturity | Commodity prices can be extremely volatile, with some moving by more than 10% in a single day |
How to trade ETPs with us
How to trade ETPs
- Create a CFD trading account or log in
- Search for your opportunity
- Select ‘buy’ to go long, or ‘sell’ to go short
- Set your position size and take steps to manage your risk
- Open and monitor your position
CFD trading
You can trade on ETPs using over-the-counter derivatives like CFDs (contracts for difference). They enable you to speculate on the price direction of a market – whether it’ll increase or decrease.
CFDs are leveraged, which means you’ll gain full exposure to the underlying market for a fraction of the cost, known as the margin. While this means any profits made can be amplified, so too will any losses you incur.
Our CFD trading account gives you access to thousands of financial markets, including ETFs, ETNs, ETCs and other exchange-traded products. There are different ways to trade CFDs – via spot markets, futures or options.
Options
Options are a type of tradeable derivative contract that give the holder the right, but not the obligation, to buy or sell an underlying asset at a fixed price – provided it moves beyond that price within a set timeframe.
You can trade ETP options using CFDs, which means you can trade the markets by going long (known as buying a call option) or short (buying a put option).
Futures
Futures (also known as ‘forwards’ in shares, ETFs and forex markets) are financial contracts in which two parties – a buyer and a seller – agree to exchange an underlying market for a set price at a future date.
These instruments give the buyer the obligation to buy the asset, and the seller the to sell it, on or before the contract expires. As with options, you can trade futures using a CFD trading account from us.
How to trade ETPs summed up
- Exchange-traded products or ETPs are securities that are listed on an exchange and can be traded using our CFD trading account
- Some of the more popular kinds of ETPs are exchange-traded funds (ETFs), exchange-traded notes (ETNs) and exchange-traded commodities (ETCs)
- ETFs are a type of investment fund that seek to track the performance of a benchmark index
- ETNs enable you to speculate on the value of an index or asset in the form of unsecured debt
- ETCs closely track a commodity, group of commodities or a basket of goods through an index
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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