ETF: Exchange Traded Funds Explained
Exchange Traded Funds (ETFs) are funds traded directly on the stock exchange, similar to individual shares. They combine the diversification benefits of mutual funds with the flexibility of stock trading.
Investing in funds involves risk.
How ETFs Work
An ETF typically tracks a specific index, commodity, or basket of assets. Unlike traditional mutual funds, which are priced once daily, ETFs can be bought and sold throughout the trading day at real-time market prices.
Most ETFs are passively managed, resulting in lower management fees than actively managed funds. However, since they trade like stocks, you will pay a brokerage fee (commission) for each transaction.
ETFs vs. Traditional Funds
- Trading Frequency: ETFs trade continuously during market hours. Regular funds are priced and traded only once per day.
- Pricing: ETF prices fluctuate in real-time. Traditional funds have a fixed NAV set after market close.
- Cost Structure: ETFs usually have lower ongoing management fees but incur transaction costs (brokerage).
- Return Goals: Passively managed ETFs aim to match index performance, whereas active funds aim to outperform it.
Key Advantages
- Flexibility: Execute trades instantly during market hours to react to news or trends.
- Transparency: Real-time pricing allows you to know the exact execution price.
- Diversification: Gain broad market exposure through a single investment.
- Lower Costs: Benefit from low expense ratios associated with index tracking.
Specialized ETFs: Bull and Bear
Some ETFs use leverage to amplify returns or provide inverse performance.
- Bull ETFs: Aim to increase in value when the underlying asset rises.
- Bear ETFs: Aim to increase in value when the underlying asset falls. These are often used for hedging or speculating on market declines.
Trading at Quartal
You can trade ETFs listed on the Stockholm Stock Exchange and other major European markets. Our platform provides access to leading providers such as iShares, Vanguard, Xtrackers, and Amundi.
Currency and Exchange: ETFs listed outside the Nordic region are traded in currencies such as EUR or USD. Quartal automatically handles currency conversion based on current market rates and our applicable price list.
Frequently Asked Questions
What are the costs involved?
You pay a brokerage fee for each buy or sell order, plus an annual management fee. Details for each specific ETF can be found in the fund’s fact sheet in our fund list.
What are the risks?
ETFs carry market risks similar to stocks and traditional funds. Narrow ETFs (focusing on single commodities or emerging markets) typically have higher volatility than broad index ETFs. Additionally, foreign-listed ETFs involve currency risk.
How are they taxed?
Taxation depends on your account type. In an Investment Savings Account (ISK) or a Capital Insurance, you pay an annual standard tax instead of capital gains tax on profits. In a traditional fund account, a 30% tax applies to all realized gains.
