Exchange-Traded Fund (ETF) is like a stock, but instead of buying one company’s stocks (shares), you buy a selection of multiple companies’ shares. Because you are not directly purchasing the asset (equity/company/etc.), they are relatively easy to trade, do not have high minimum investment requirements and are often tax-efficient.
This guide will attempt to give you information about trading in ETFs in the United Kingdom, including how much it costs to open an account with each broker, what types of investments they offer and any other general information that might be useful.
When it comes to ETFs, the United Kingdom is a bit of a different beast than the United States. For one, there are far fewer ETFs available on the London Stock Exchange (LSE). But that doesn’t mean that you can’t make money trading them. In this article, we’ll go over some of the basics of trading ETFs in the UK.
Basics for trading ETFs in the UK
- First, open an account with a broker that offers access to the LSE. Many brokers provide this service, so shop around until you find one that meets your needs.
- Once you have your account, you need to learn how to use the trading platform. Each broker has its unique platform, so it’s essential to take the time to learn how to use it.
With your account and trading platform set up, you’re ready to start trading ETFs. The first you need to do is understand the different types of orders available to you. The most common orders are market orders, limit orders, and stop-loss orders.
- Market order is the easiest type of order. When you place a market order, you tell your broker to buy or sell the ETF at the current market price.
- Limit order is an order to buy or sell an ETF at a specific price or better. Example: if you want to buy an ETF at £10 per share, you will place a limit order to buy at £10.15 per share.
- A stop-loss order is used to minimise losses on a position in an ETF. Example: if you own 100 shares of the FTSE 100 ETF at £12 per share and the price starts to drop, you can place a stop-loss order at £11.50 per share to limit your loss potential.
Several types of orders can be placed during after-hours trading, including reasonable ’til cancelled (GTC) orders, fill or kill (FOK) orders, day only orders, and Immediate or Cancel (IOC) orders. All of these different types of after-hours orders work exactly like their regular counterparts, except that they can only be filled during after-hours trading sessions.
- The final thing you need to know about how to trade ETFs in the United Kingdom is that investors don’t have access to all ETFs available on other exchanges, including those available on U.S.-based exchanges. For example, no Oil Trust (USO) or Gold Trust (GLD) ETFs are listed on the LSE because oil and gold are not traded as commodities in the UK. Investors looking to invest in these types of funds will either need to purchase shares through a U.S.-based brokerage or use exchange-traded notes (ETNs).
ETFs aren’t for everyone—some people prefer mutual funds – but they offer many advantages for investors that know how to use them properly. With a bit of knowledge and practice, you can be on your way to profiting from trading ETFs in the United Kingdom.
One more thing you should take away from this? Different brokers offer different products, services and fees, so it’s essential to do your research and find the one that best suits what you need.