ETFs, a whole basket traded like one share.
What an exchange-traded fund is, what moves its price, and how fund units are quoted and traded.
What an ETF is
An exchange-traded fund, or ETF, is an investment fund whose units are listed on a stock exchange and trade there throughout the day, in the same way as a company’s shares. Each unit represents a portion of everything the fund holds.
Most ETFs follow an index: they hold the shares, bonds or other assets that make up the index, so the fund’s price moves with it. Others follow a commodity, an industry or a theme chosen by the fund’s manager.
A fund charges a yearly fee for its running costs. The fee is taken from the fund’s assets rather than paid separately, so it shows up as a return a little below that of the index the fund follows.
An ETF, in three words
The name says exactly what it does. Each panel below illustrates one of the three words.
It is bought and sold on a public market, where buyers and sellers meet.
Its price moves through the day, the same way a single share does.
One holding that contains many, so a single purchase spreads across them.
An exchange‑traded fund is a basket of holdings you can buy and sell in one transaction, at a price that moves through the trading day.
ETF markets at a glance
Seven widely followed exchange-traded funds listed in the United States, grouped by what they hold: US shares, shares outside the United States, bonds and commodities. Prices are in US dollars. The funds are examples chosen for market context, not a catalogue of instruments.
What moves ETF prices
What the fund holds
The prices of the fund’s holdings are the main driver: a fund that follows a share index rises and falls with that index.
Interest rates
Rates move shares and, above all, bonds: when rates rise, the prices of existing bonds usually fall, and bond funds with them.
Currencies
A fund that holds assets priced in another currency gains or loses when that currency moves against the fund’s own.
Demand for the units
Buying and selling of the units themselves can push the price a little above or below the value of the holdings, especially when those markets are closed.
How ETFs trade
Price and value
A fund publishes the value of its holdings for each unit, known as its net asset value. The trading price usually stays close to that value, because specialist firms can exchange large blocks of units for the fund’s holdings, or the other way round, whenever the price and the value drift apart. When the price is above the value, the difference is called a premium; when it is below, a discount.
Spread
Every fund has a buy price and a slightly lower sell price. The gap between them is the spread, a cost paid on every trade. Widely traded funds tend to have narrow spreads, and funds that trade little can have wider ones.
Trading hours
Units trade while their exchange is open. A fund that holds assets from another time zone keeps trading while those markets are closed, and its price then reflects what traders expect rather than live prices for its holdings. The exchanges and hours Noryn Markets offers are confirmed on request.
Leverage and margin
Leverage lets you hold a position larger than the money you set aside for it, and the money set aside is the margin. Leverage magnifies losses as much as gains. If losses take the money in an account below the margin its positions need, positions can be closed automatically, at a loss. How much leverage is available differs by account type and by market, and the figures that apply to an account are confirmed on request through the contact form.
Leveraged and inverse funds
Some funds are built to move by a multiple of their index’s daily move, or in the opposite direction to it. They reset every day, so over longer periods their returns can differ widely from that multiple of the index’s return.
Distributions and swaps
A fund that receives dividends or interest may pay them out to unit holders, and positions that follow the price receive or pay an adjustment when it does. A position held open overnight usually has a swap applied as well: a small charge or credit for financing the position.
Kinds of ETF
ETFs can be considered by the markets and exposures they track. Any funds shown on this page are a small selection of examples for market context, not a complete catalogue. Which funds Noryn Markets offers is confirmed on request.
Share index funds
Funds that hold the shares of an index, from the largest companies of one country to markets around the world.
Bond funds
Funds that hold government or company bonds. Their prices tend to move less than share funds, and fall when interest rates rise.
Commodity funds
Funds that hold a metal itself, such as gold, or follow commodity prices through futures contracts.
Industry and theme funds
Funds that hold companies from one industry, such as technology or healthcare, or linked by a theme. They spread risk less than broad index funds.
The risks
Leverage magnifies losses
A small move in a fund’s price can cause a loss larger than the margin set aside for a position.
A fund can trail its index
Fees, trading costs and differences between what a fund holds and its index can leave its return below the index’s.
Price away from value
When markets are under strain, or a fund trades little, its price can move well away from the value of its holdings.
Leveraged funds over time
Held for longer than a day, leveraged and inverse funds can lose value even when their index ends where it started.
Questions about ETFs
How is an ETF different from a company share?
Both trade on an exchange in the same way. A company share is a stake in one business, while an ETF unit is a portion of a fund that may hold hundreds of shares or other assets.
Is an ETF less risky than a single share?
Holding many companies lowers the effect of any one company’s news, but a fund still falls when its market falls, and a fund focused on one industry or commodity can move as sharply as a single share.
Why does an ETF’s price differ from its net asset value?
The price is set by buyers and sellers of the units, while the value is calculated from the holdings. They usually stay close, but can drift apart when the holdings’ markets are closed or under strain.
Which ETFs does Noryn Markets offer?
Any fund named on this page is an example used to explain how a fund is put together, not a catalogue. Which funds Noryn Markets offers is confirmed on request through the contact form.
What are the trading hours for ETFs?
Units trade while their own exchange is open, which is not always when the markets their holdings come from are open. The hours that apply to an account are confirmed on request through the contact form.
Other markets
- Forex
Currency pairs, where one currency is priced against another.
- Indices
A single price that follows a basket of company shares.
- Commodities
Raw materials, from energy to agricultural products.
- Precious metals
Metals valued for their scarcity and long history as a store of value.
- Shares
Prices that follow individual companies listed on stock exchanges.
Interested in ETFs?
Register your interest, and say which kinds of fund you would like to hear about.
Open accountImportant information
Trading forex and contracts for difference involves a high level of risk, and it is not suitable for every investor. These products use leverage, which means a position can be held with only part of its value set aside as margin, and leverage magnifies gains and losses alike. A position may be closed when margin requirements are not met. Markets can move quickly, and at times a market can be difficult to trade at all. Past performance is not a reliable indicator of future results. Nothing on this website is investment advice or a recommendation, and nothing here takes account of your objectives, your experience or your circumstances. Consider your own circumstances, and seek independent advice before you act.
This page explains a market in general terms, for people deciding whether they want to learn more about it. It is not advice about that market or about any instrument in it, and naming something here does not mean it can be traded through Noryn Markets.