The VIX tracks volatility in the S&P 500 and is often called the market’s ‘fear gauge.’ With a VIX ETF, users have the chance to speculate on whether market volatility will go up or down.
In this guide, we’ll review some Popular VIX ETF UK for 2021.
VIX ETF UK 2021 List
Here are 5 popular VIX ETFs in the UK that you can trade in 2021:
- iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX)
- ProShares Short VIX Short-Term Futures ETF (SVXY)
- VelocityShares 1X Long VSTOXX Futures ETN (EVIX)
- VelocityShares Daily Long VIX Medium-Term ETN (VIIZ)
- LHA Market State Alpha Seeker ETF (MSVX)
VIX ETFs UK Reviewed
Let’s take a closer look at the 5 VIX ETFs (exchange-traded funds) and ETNs (exchange-traded notes) in the UK in the sections below.
1. iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX)
The iPath VIX Short-term Futures ETN (exchange-traded note) is the premiere fund for tracking volatility in the S&P 500 index, with over $1 billion in assets under management. The fund tracks a basket of futures contracts representing what investors think the VIX will be in 1-2 months’ time. So, it might not perfectly track the VIX itself, but it does represent near-term thinking about volatility in the equity market.
Importantly, the VXX fund uses a daily rolling position in these futures contracts. That means that the fund’s holdings change on a daily basis, so you’ll want to use this ETN for day trading only. Over the long term, the fund always produces a negative return.
The fund has an expense ratio of 0.89%, which is pricey. However, that fee level is standard among popular VIX ETFs since they are actively managed funds.
67% of retail investor accounts lose money when trading CFDs with this provider.
The ProShares Short VIX ETF is an inverse ETF designed for investors who believe that market volatility will go down, not up. The fund seeks to mirror the one-half the inverse of the S&P 500 VIX Short-term Futures Index, which is the same index that the iPath Short-term Futures ETN (VXX) replicates. So, if volatility shrinks by half, the value of the SVXY ETF will rise by 25%.
This fund looks primarily at futures contracts for the VIX for 1-2 months into the future. So, it doesn’t necessarily track the VIX itself, and it doesn’t reflect longer-term thinking about volatility.
The ProShares Short VIX ETF has an expense ratio of 0.95%.
The VelocityShares VSTOXX Futures ETN tracks the VSTOXX index, which is essentially the European version of the VIX. Instead of tracking volatility in the S&P 500, as the VIX does, the VSTOXX tracks volatility in the European STOXX 500 index.
This ETN is long on VSTOXX futures contracts, meaning that the value of the fund rises when volatility rises. It tracks a mix of short-term (1-2 month) and medium-term (5-month) futures contracts for the VSTOXX.
The VelocityShares VSTOXX Futures ETN has a very expensive 1.35% expense ratio.
If you want to speculate on volatility not in 1-2 months’ time, but rather in 6 months’ time, you need a medium-term VIX ETF. That’s where the VelocityShares Medium-term ETN comes in handy.
This ETN invests in futures contracts for the VIX with expiration dates that are 3-6 months away. Notably, you may combine trades in the VIIZ fund with trades in a short-term volatility fund to develop a complex hedging strategy for market volatility.
The VIIZ fund has an expense ratio of 0.89%.
5. LHA Market State Alpha Seeker ETF (MSVX)
The LHA Market State Alpha Seeker ETF is an interesting fund for traders and investors who want to speculate on volatility, but don’t want to purchase shares of the available VIX ETFs. The fund is designed to generate returns that are completely uncorrelated with the performance of the stock market, and it does so by trading heavily in VIX ETFs.
In fact, the largest holding in the MSVX fund is the ProShares Short VIX Short-Term Futures ETF. That inverse VIX ETF makes up more than half the fund’s value.
Notably, the Market State Alpha Seeker ETF doesn’t require you to exit your position daily as most VIX ETFs do. Instead, users can invest for up to 3 months at a time before positions are rolled over.
What are VIX ETFs?
VIX ETFs offer investors the ability to speculate on the value of the VIX. The VIX, or CBOE Volatility Index, is a measure of volatility in the S&P 500 stock market index.
The VIX is often called the market’s ‘fear gauge.’ When prices are rising steadily and there are no signs of concern among investors, the VIX falls. When selling activity spikes or options trading activity indicates that investors expect the market to drop, the VIX rises.
Most of the popular VIX ETFs in the UK don’t track the VIX itself. Rather, they invest in derivatives like futures contracts that represent where investors think the VIX will be in the future.
So, VIX ETFs can change in value independently of the VIX. Short-term VIX ETFs like the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) track futures contracts for 1 to 2 months into the future. S&P 500 mid-term VIX futures ETFs like the VelocityShares Daily Long VIX Medium-Term ETN (VIIZ) track VIX futures contracts for 3-6 months into the future.
Are VIX ETFs a Valuable Investment?
VIX ETFs can be used alternative investments, but the complexity of these financial instruments makes them suitable mainly for experienced traders. Let’s take a closer look at some of the key things you need to know when deciding whether VIX ETFs are right for you.
The biggest thing investors need to understand about VIX ETFs is that they are not suitable for long term investments. These funds are meant to be held for periods of at most one day.
That’s because of how VIX ETFs are structured. These funds purchase VIX futures contracts at the start of each day and close out positions at the end of each day. The next day, the fund resets with a new set of futures contracts.
This daily turnover ensures that the fund is accurately tracking the investor sentiment around the VIX each day. However, every time the fund resets, you would lose money as your positions are closed and then lower value positions are reopened.
So, it is essential that you only use VIX ETFs for day trading. This means that these funds are suited to active traders rather than short or long term investors.
Another thing to note about VIX ETFs is that they tend to have very high expense ratios. The expense ratio is a fund’s management fee. The tradable VIX ETFs in the UK typically charge around 1% or more on an annual basis (holding the fund for a single day will cost much less).
While it is possible to trade VIX ETFs to profit off of market volatility, many UK traders use VIX ETFs to hedge their positions. Since the VIX rises when stock prices fall, holding a VIX ETF can help keep your portfolio afloat during a stock market crash.
Inverse and Leveraged VIX ETFs
While most VIX ETFs simply track the value of a given set of VIX futures contracts, there are also inverse VIX ETFs and leveraged VIX ETFs.
Inverse VIX ETFs rise in value when the VIX falls and fall in value when the VIX rises. So, they are a possible option for traders who believe that market volatility will remain low. Throughout market history, volatility has been low much more often than it has been high.
Leveraged VIX ETFs use options trading to increase their movements relative to the VIX. So, if VIX futures double in value, a 2x leveraged VIX ETF would quadruple in value. Leveraged ETFs can provide more profit when your trade works out, but they also dramatically increase your risk.
If you’re unsure about whether a VIX ETF is right for you, seek out professional investment advice for more information.
VIX ETF UK Investment Platforms 2021
In order to trade VIX ETFs in the UK, you’ll need a stock broker that offers ETF trading. To make it easier for you to get started, we’ve reviewed 2 popular UK investment platforms for trading VIX ETFs in 2021.
Trading VIX ETFs with eToro is 100% commission-free. Plus, eToro allows you to purchase fractional shares of ETFs, so you may trade with as little as £8.
eToro offers many tools for analysing the market and choosing when to purchase and sell volatility funds. To start, the broker has a custom charting and technical analysis platform for web and mobile. You get access to over 100 indicators and drawing tools, plus a news feed, economic calendar, and market sentiment gauge.
In addition, eToro has a built-in social trading network where users can monitor the activity of fellow traders and join discussions. If there’s fear building among investors, this network allows you to catch it before it becomes clear across the market. You may also copy the positions of more experienced volatility traders and keep an eye on how their buying and selling activity changes over time.
eToro is regulated by the UK Financial Conduct Authority (FCA) and all UK accounts are protected by the Financial Services Compensation Scheme. The broker offers 24/5 customer support by phone and email if you need help with your account.
|Stock Broker||Minimum Deposit||Fractional Shares?||Pricing System||Cost of Buying Stocks & ETFs||Fees & Charges|
|eToro||$10||Yes – $10 minimum||0% commission on ALL real stocks, spreads for CFDs||Market spread is not included when buying real stocks||No Deposit fees, $5 withdrawal fee, $10 inactivity fee, no account management fees.|
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Capital.com offers the ability to trade popular VIX ETFs as CFDs. In addition, you may use CFD trading to speculate on the price of the VIX itself or use futures trading to purchase any individual outstanding VIX futures contracts.
Trading CFDs with Capital.com is 100% commission-free and the broker offers some of the tightest spreads of any platform in the UK. In addition, Capital.com has no deposit or withdrawal fees and no inactivity fee.
The broker offers a proprietary trading platform for web and mobile that has everything traders could need. You may set up custom watchlists, access dozens of technical indicators, and monitor the market with a tailored news feed. In addition, Capital.com’s mobile trading app offers price alerts so you have the option to analyse market movements.
Capital.com also uses artificial intelligence in their platform set-up.
Capital.com is regulated by the UK FCA. The broker offers 24/7 customer support. You may also get in touch by phone, email, or live chat.
79.17% of retail investor accounts lose money when trading CFDs with this provider.
How to Invest in VIX ETFs UK
If users are looking to invest in some of the popular VIX ETFs in the UK, you should look to choose a suitable broker that can provide you with low fees, multiple stock options and additional tools & features.
After choosing your suitable broker, here is how you can begin the investment process.
Step 1: Open a Trading Account
Head over to the homepage of your chosen broker and begin the account set-up process. You will be required to fill in your personal details – including your full name, email address and mobile number. Create a username and password for the platform to continue.
Step 2: Verification Process
Most reputable brokers in the UK are regulated by the FCA – which is why users may be required to verify their accounts. To do this, simply upload proof of ID (a copy of your driver’s license or passport) and proof of address (a copy of a bank statement or utility bill). Once these documents have been uploaded, your broker should verify them in a couple of minutes.
Step 3: Deposit funds
The next step is to deposit funds into your trading account. Most brokers may support 1 or more of the following payment methods:
- Credit card
- Debit card
- Bank transfer
Choose your preferred payment option and deposit the funds into your account.
Step 4: Invest in VIX ETFs
Once your account has been funded, proceed to search for any VIX ETFs you wish to purchase on your platform’s search bar. Fill in the amount you want to credit into the trade, and confirm your transaction.
With a VIX ETF, users have the chance to speculate on whether volatility in the S&P 500 is likely to rise or fall in the coming weeks and months. Trading the market’s ‘fear index’ can be complex since you need to sell your position at the end of each trading day. This is why, users should research and analyse every ETF prior to their investment.