Compare the best VIX ETFs
Exchange-traded funds (ETFs) are becoming an increasingly popular way to invest in conventional stock indices, as well as a volatility index such as the VIX. This page will help you learn the best strategies for investing in VIX ETFs.
Best VIX ETFs
While the VIX isn’t as commonly traded as a benchmark stock index like the S&P 500, there are still multiple VIX ETFs to choose from. We profile the best VIX ETFs in the table below. Some of the most prominent VIX ETFs around today include:
|1||ProShares VIX Short-Term Futures ETF (VIXY)|
|2||ProShares VIX Mid-Term Futures ETF (VIXM)|
|3||iPath Series B S&P 500 VIX Short-Term Futures (VXX)|
|4||VelocityShares Daily Long VIX Short-Term (VIIX)|
|5||iPath Series B S&P 500 VIX Mid-Term Futures (VXZ)|
Brokers offering VIX ETFs
Multiple different online brokers give you the ability to trade VIX ETF, so you’ll need to pick one that works best for your specific investing needs. You can find a broker quickly and easily by simply selecting one from the table below:
What is a VIX ETF?
A VIX ETF is an exchange-traded fund that tracks the movement of the VIX, going up or down based on levels of market volatility. The VIX itself is the Chicago Board Options Exchange’s CBOE Volatility Index, and is sometimes referred to as the ‘fear index’. It is a popular measure of the stock market’s expectation of volatility and works by tracking the performance of the S&P 500 index.
The ProShares VIX Short-Term Futures ETF (VIXY) and ProShares VIX Mid-Term Futures ETF (VIXM) are two of the most popular VIX ETFs traded today.
Is it a good investment?
A VIX ETF is a more complex investment than a typical stock market index, because you’re betting on expected market volatility rather than simply trying to invest in an index you feel will rise in value. That said, if you invested in a VIX ETF in, say, mid-February 2020 and sold a month later, you would have made a very large profit, due to fears over the economic impact of COVID-19 causing market chaos.
There’s still plenty of risk involved in buying into a VIX ETF, though. For instance, if you thought that massive job losses caused by COVID-19 would trigger one continuous spike in market volatility, you would have been proven wrong, as the VIX has pulled back sharply since its March 2020 peak.
How do I trade VIX index ETFs?
We already covered how buying a VIX ETF can require more study than buying, say, an S&P 500 ETF. If you’re fine with the more complex nature of the VIX, here are three factors to review before making your ETF purchase:
- How to choose an ETF
- How to choose a broker
- Use our top tips to succeed
1. How to choose an ETF
Here’s a look at some more factors to consider when deciding on a VIX ETF to buy:
- Total value of assets. The higher the total value of assets in an ETF, the better its liquidity will be, and the tighter its price spreads will be. These are both positives for investors. Lower liquidity means you’ll be taking on more risk and possibly more costs.
- Charges and fees. ETFs charge significantly lower fees than index funds, making them a better bang for your buck. ETFs are also easier to trade than index funds, since you can trade them in real time, as you would a stock. However, there will still be fees applicable, so ensure these are of a reasonable level before buying VIX ETFs.
- Daily trading volume. The higher the daily volume of a VIX ETF, the better. Higher volume levels tend to produce more stability and less frequent wild price swings.
- Performance over time. Look for a VIX ETF with a strong track record, as that’s a good indicator of how well it will likely perform in the future.
- Liquidity. The more liquidity a VIX ETF has, the more interest it will attract, and the more stable its price action is likely to be.
- Location and tax status. An ETF’s tax status can sometimes change based on the country in which it’s based. If you’re deciding between two VIX ETFs with similar track records and one of them is based in a lower-tax country, that could be your better bet.
- Leverage. Trading a VIX ETF with leverage means you’re putting down a small percentage of the total trade, with your broker covering the rest. Trading with leverage means bigger gains than non-leveraged trades when you guess right but also bigger losses than non-leveraged trades when you’re wrong. That makes it a strategy that’s generally best suited for more experienced investors.
2. How to choose a broker
If you want to trade ETFs, then you’ll need to find a broker that can facilitate these trades. There are a wide variety of different online trading platforms from which you can choose, so we’ve compiled this list of what you want to look out for when selecting the right broker for you.
- What services they offer. The first step you need to check is that the broker you have selected offers ETF trading, and whether – if so – you’ll be able to use the platform to buy and trade [insert ETF]s. Beyond this you might want to check other trading options the broker offers, such as how much leverage you can trade with.
- Whether the platform offers a demo account. If you’re new to ETF trading, then it’s wise to start off with a demo account. These are offered by many brokers and allow you to place trades without risking any of your capital. You won’t make any money with a demo account, but using one to learn the ropes can prevent losses later on.
- The fees charged. Trading ETFs often incurs fees, and these will vary from broker to broker. Sometimes there’ll be a flat rate for making trades, and sometimes brokers will charge commission. Check out the fees charged by a broker before signing up to their service.
- Financial limits. Brokers will often apply a variety of limits to users’ trading activities. This can include deposit/withdrawal minimums and maximums or daily ETF trading limits. Make sure you pick a provider that can cater to the level of trading you’re looking to be doing.
- Security features and regulation. When investing your money with a platform, you want to ensure that it is reputable, complies with relevant legislation, and has good online security features. You can find reliable brokers by looking through our reviews, or simply follow the links to brokers that are listed on this page.
3. Use our top tips before investing
Before investing in a VIX ETF, make sure you have a sound investing plan. Follow these steps to build that plan:
- Do your research. Study the top VIX ETFs, which we reviewed earlier. Compare each one to your own specific investing goals before deciding which VIX ETF to choose.
- Set a budget. Setting a budget ensures that you have plenty of money left over for future trades, even if your first attempt at buying a VIX ETF goes wrong. Most importantly, you should never invest more than you can afford to lose.
- Select the right platform. Choose an online broker based on the size of its transaction fees, ease of use, track record, and strength of reputation. We have comprehensively reviewed all your best options to help you make the best decision.
- Grow your investments over time. As a beginner investor, consider starting small. You can always raise the size of your investments as you get better with time.
- Think long-term. VIX ETFs are much more conducive to short-term trading than a typical stock index than the S&P 500, because it’s more volatile. So when we say think long-term, in this case we’re advising that you consider making a VIX ETF part of a larger portfolio, while looking for different investment assets to trade for potential longer-term gains.
What should I do now?
Choose an ETF broker that’s right for you, punch in the ticker symbol for the VIX ETF you want to trade, and click Buy. Congratulations, you’ve invested in the VIX ETF.
Try some of our investment courses for beginners
Don’t feel ready to buy your first VIX ETF just yet? That’s totally ok! Check out the easy-to-understand educational course and news updates that we offer at Invezz.com to help you become better prepared to trade VIX ETFs.