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How to invest in VIX index funds in 2023

Find out how to invest in the VIX index, learn which trading platforms have the lowest fees, and what’s easiest for beginners.

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Updated: May 12, 2023

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It only takes a few minutes to invest in the VIX index. One of the simplest and most popular ways to invest is to buy shares in a Vanguard VIX ETF through an online trading platform.

Where can I invest in the VIX index?

According to our expert research, eToro is the best ETF broker to invest in VIX index funds.

Both VIX ETFs and VIX CFDs are available to invest in through eToro .

Here are three more places to buy the VIX, ranked according to their cost, security, and features.

How do I invest in the VIX CBOE Volatility Index index?

The easiest way is to sign up to a stock broker, open an investment account, and buy shares in an VIX ETF or CFD. This guide explains how to do it:

Step 1. Sign up to eToro

We recommend using eToro to invest in VIX. Sign up for a brokerage account and deposit some money. You may need to supply a form of photo ID to verify the account.

Step 2. Decide how to buy VIX

This boils down to choosing between an VIX ETF or CFD. ETFs are generally better suited to investors who want to passively track the VIX’s performance. CFDs offer a greater range of trading options: you can use leverage, short the index, or buy and sell it outside of trading hours.

Step 3. Invest in the VIX

Sign into your trading account and search for the VIX. Hit the ‘buy’ button and enter the details of your purchase, such as how much you want to spend. Hit ‘buy’ again to execute the trade.

Step 4. Monitor your investment

When you buy a CFD, the trade goes through more or less instantly, and you’ll be able to see your new open position in your trading account. ETF purchases can take longer, and if you buy outside of traditional trading hours it won’t go through until the next morning.

Your trading account will show the price change in the VIX since you bought it, so you can see your profit/loss at a glance. Use that information, along with your own research, to decide when to sell the VIX and close your position, ideally at a profit!

The different ways to invest in the VIX CBOE Volatility Index

As we mentioned above, there are numerous ways to put your money into the VIX. ETFs and CFDs are the simplest options for beginners, but there are alternatives. Here’s a brief overview of each option and who it’s best suited for.

VIX ETFs

An ETF (exchange-traded fund) is an investment fund traded on a stock exchange, much like a stock. Exchange traded funds can hold different assets, such as individual stocks, bonds, or commodities, or serve as a proxy for a stock market index.

An VIX ETF is one way of investing in the VIX. It’s simply an investment fund that mirrors the performance of the VIX. When you buy shares in the fund, the value of your investment will rise or fall with the VIX itself.

ETFs are ideal for new investors because they have a very low minimum investment. You can start with a few pounds and get exposure to some of the world’s largest companies. They’re also practical if you plan on trading the VIX index, because you can buy or sell shares in the fund throughout the day.

Examples of popular VIX CBOE Volatility Index ETFs

iPath Series B S&P 500 VIX Mid-Term Futures ETN (VXZ)
ProShares VIX Mid-Term Futures ETF (VIXM)
Simplify Volatility Premium ETF (SVOL)

VIX index funds

An index or mutual fund is an investment fund that aims to track the performance of a stock market index, such as the VIX. It’s very similar to an ETF, in that there are low management fees and you can buy shares through your online broker.

However, there are a couple of differences. VIX index funds are only priced at the end of each trading day, so you can buy or sell shares in the fund once per day. There may also be a higher barrier to entry, through a much larger minimum investment when you invest in VIX index funds.

That means an VIX mutual fund is better suited for long term investors with a higher initial budget, where the infrequent trading and barriers to entry are far less of an issue.

VIX CFDs

CFDs (contracts for difference) are a way to speculate on VIX price changes with more flexibility than if you use an ETF or index fund. A CFD is a ‘derivative’, which means it gets its value from the underlying asset – in this case the VIX – but it’s separate from it.

As a result, CFDs can be leveraged, where you borrow money to multiply the size of the trade, or they can be used to go ‘short’, where you place a trade on the index to fall in value. You can also buy and sell them outside of regular trading hours.

All of this means VIX CFDs offer the potential to outperform a fund that passively tracks the VIX’s performance. Of course, you can also underperform it as well. Tools like leverage and shorting introduce a lot more risk, and are best left to experienced traders.

VIX futures

Futures contracts are agreements to buy or sell the VIX CBOE Volatility Index at an agreed price on a set date in the future. VIX futures are a means to predict how you think the index is going to perform over a set time frame, such as the next three or six months.

Most futures contracts involve leverage, so you only put up a small part of the total trade value (the margin) when you buy one. That makes futures more risky, and they require a bit more financial expertise to understand as well.

Some traders use futures as a hedge against the performance of stocks they own. For instance, if you own stocks that are part of the VIX then you might want to short the VIX so that you still make some money if the price falls.

VIX stocks

Another way to invest in the VIX is to buy shares in the individual stocks that the index tracks. It isn’t practical to buy every share in the index, but you can invest directly into a few of the most heavily weighted stocks in the VIX in order to get broad exposure to its performance.

The most heavily weighted stocks in the VIX tend to be the largest companies by market capitalisation. If you invest directly in those largest stocks, you gain exposure to the index without taking on the risk of all the underlying companies.

One reason to do this is that these larger companies with the highest market cap dominate the index anyway, so that it can give you the impression of a diversified portfolio while actually being reliant on the performance of those particular stocks.

The flip side of investing directly like this is that you lose the diversification and stability that comes with buying into an entire index. It requires much more hands-on management to do your own stock picking, so it’s best suited to more experienced investors.

How much does it cost to invest in the VIX index?

From $0 to $5, depending on how you invest. For each option, you must consider the cost of buying the actual asset, whether that’s an ETF, index fund, CFD, or share, plus the fees associated with it.

Instrument	Trading fee	Management fee
Exchange traded funds	$0-$5.99	0-0.2%
Index fund / mutual fund	$0-$5.99	0.1-2%
Individual stock	$0-$3	None
CFD	$0	None

*A fee comparison of 3 leading brokers for example purposes

ETFs and CFDs are generally the cheapest option overall, as they have low fees and a low minimum investment. Index funds and mutual funds have low fees but may have a high minimum investment. Buying individual stocks is the most expensive option in absolute terms, because the share price of a single large company is often more than $100.

All options are likely to include a trading fee, which you pay each time you make a transaction. Some trading platforms offer zero-fee trading, with others it may be a few dollars.

Then ETFs and index funds each have their own expense ratio. Expense ratios refer to an annual management fee, charged as a percentage of your total investment. Expense ratios are usually no more than 0.05%, so if you invest $1,000, you would pay $5 per year in management fees.

Should I invest in the VIX index?

Yes, VIX investing is a great choice if you’re looking for a safer investment with more price stability compared to picking individual stocks. It gives you an instantly diverse portfolio with exposure to a broad area of the stock market.

The flip side is that you have less control over which companies you invest in. An index committee decides how the index works, and you can’t pick and choose the underlying companies you like the most. The VIX is better suited to hands-off investors, compared to those who have the skills, experience, and desire to pick their own stocks.

What are the advantages of investing in the VIX index?

An index provides instant stock market diversification, where you spread your risk across a large number of underlying companies, rather than one or two. Here are some more reasons why you might want to invest in the VIX index:

The VIX can be used to hedge or reduce risk. The VIX is inversely correlated to the S&P500. This means that when the S&P goes down, the VIX will tend to rise. In times of market uncertainty, you could allocate a portion of your portfolio to the VIX to hedge or protect against the S&P dropping.
There is potential for high returns. The VIX is a volatile index and often experiences sharp and sudden movements. This can create many opportunities for astute investors to earn high returns. Although, it is important to note that if you’re on the wrong side, you can lose money quickly too.
Lots of VIX ETFs are available. Like other indexes, such as the S&P 500, there are many VIX ETFs from various providers. ETFs offer a convenient and cost-effective way to invest in the index and take advantage of short-term opportunities.
It is not correlated to traditional asset classes. The VIX measures the volatility of the S&P 500 but is not correlated with traditional asset classes such as stocks and bonds. This makes it a good choice for investors wanting to diversify and reduce their portfolio risk.

What are the disadvantages of investing in the VIX index?

The main risk of investing in the VIX is that all the underlying companies are related in some way, so a broader economic downturn that affected the entire country would likely affect many stocks in the index at the same time. Here are some more risks of VIX investing.

The VIX is highly volatile. As mentioned previously, the VIX is a highly volatile index that can be risky for new investors, especially those with little experience. Its wild price swings can catch many off guard and if you don’t know what you’re doing, you can lose money quickly.
It’s a short-term investment. Most investors use the VIX as a way to gauge volatility and those that invest typically use it for the short term. The VIX can be highly sensitive to market events which is one of the reasons it is best suited for short-term investors.
The VIX provides limited market exposure. The index only exists to measure the volatility of the S&P 500 and does not offer exposure to a broad range of markets or sectors. This means that investors who only invest in the VIX may miss potential opportunities elsewhere.

Invest in the VIX Index

FAQs

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More indices to invest in

Sources & references

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Max Adams

Editor of Education

Max has a keen interest in the transformative power of technology and is the founder of a platform called Current Frequencies. When not at his desk,... read more.