Exchange-traded funds - Invest in ETFs

ETF investing

ETFs or exchange-traded funds are funds that trade on a stock market. Most ETFs track the performance of a market index or a basket of stocks, so they are an easy way to spread your money across different companies in one go. Because ETFs are listed on stock markets, you can buy and sell them throughout the day.

Exchange

ETFs are bought and sold on a stock exchange.

Traded

You can buy and sell ETFs throughout the day.

Funds

ETFs invest in a collection of stocks, bonds or other assets.

Why invest in ETFs?

ETF Advantages

Simple
Invest in a ready-made basket of stocks or other assets, you don’t have to choose each stock individually.
Portfolio diversification
Spread your money across different companies and even different assets. All this should help you to reduce your stock-specific risk.
Low cost
Index ETFs are generally less expensive than actively managed funds and they should also cost less than buying each individual share.
Tax-efficient
Some ETFs are exempt from the UK’s 0.50% stamp duty. Hold your ETFs in an ISA or SIPP account and you could get extra tax efficiencies.

ETF Disadvantages

Market returns
Most ETFs track an index. By design, it will never aim to beat the index.
Diversification not guaranteed
Sector-specific ETFs might actually concentrate your risk, as any external effect on that sector could move the price of all stocks in an ETF.
Liquidity risk
Liquidity risk is the risk that an asset may be difficult to sell quickly or to sell at a reasonable price. Certain ETFs can suffer lower liquidity at times.
Investment risk
Any investment you make can rise as well as fall in value.

Please remember any tax treatment depends on your individual circumstances and may be subject to change in future. ISA and SIPP rules apply.

Learn more about ETFs

Types of ETFs to invest in

Equity ETFs - Index tracking ETFs are the most popular ETFs and provide exposure to the broader market, such as the S&P 500.

Bond ETFs - Ready-made portfolios of government and corporate bonds, covering different maturities and industries. Bond ETFs could help control the level of risk in your portfolio and potentially provide an income.

Commodity ETFs - Exchange-traded commodities (ETCs) give exposure to commodity markets and track things like gold or crude oil.

Dividend ETFs - These exchange-traded funds are focused on dividend-paying stocks and can provide a regular income.

Sector ETFs - Industry-focused ETFs can give you exposure to specific sectors you are interested in, from major industries like pharma to more niche ones like coffee.

International ETFs - Get exposure to different geographic areas and seize opportunities in developed and emerging countries.

Market-cap index ETFs - These are passive funds that select stocks based on a company’s market cap or value of its shares.

Sustainable ETFs - ESG investing is growing in popularity, and sustainable ETFs can help you diversify your investments in line with your ethical beliefs.

How to buy and sell ETFs

A few tips to help you find the right ETFs for your portfolio:

1. Start with our ETF guide
2. Research and find ETFs to buy
3. Check you are using ETFs properly
4. Buy or sell ETFs via your Freetrade app

Most traded ETFs

Most traded ETFs that our clients bought and sold on the Freetrade app during the last week, ranked by the total value of buy orders.

Understand the data:
Buy/Sell Ratio - This is calculated by dividing the total value of buy orders by the total value of sell orders for the specific instrument over the last completed week of trade. If it’s below 1, then more shares were sold than bought. If it’s above 1, more shares were bought than sold on Freetrade.
% change traded amount - This reflects the week on week percentage change in the total value of trades for the specific ticker. We are comparing the last completed week of trade against the prior week.

See all most popular ETFs

List of ETFs to buy on Freetrade

Exchange-traded funds FAQs

Are ETFs and index funds the same?

ETFs and index funds are not the same. They are similar because both ETFs and index funds tend to be passive and track the performance of a stock market or sector. But the way they are built makes them quite different.
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You can think of an ETF as more like a share. ETFs trade on the stock market so you can buy and sell them at any point. Index funds are not exchange-traded, so you can only buy and sell your holdings at certain points each day.
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For more information on what makes an ETF different. Take a look at our ETF guide.

Are ETFs good for beginners?

ETFs can be a good option for both beginners and experienced investors. They are a great way to invest in a group of companies or other assets like bonds in one go and without having to choose the companies yourself. As with any investment, a decision to invest or not should take into account your personal circumstances and goals.

Is investing in ETFs safe?

When you invest in ETFs, like with any investment, you have to be prepared that the value of your investment can go down as well as up. ETFs are not necessarily safer than any other investment, often they track an index so if that falls, so will the value of your investments. What ETFs do provide is the ability for you to spread your money across many companies in one go. This way you’re not relying on one company for growth and this can reduce the risk that your investments fall in value.

Can I buy fractional ETFs via the Freetrade app?

At the moment you can’t buy fractional ETFs via the Freetrade app. However, fractional ETFs are on our product roadmap and will be available in the future.