For those who like to trade on the Danish stock market but aren’t familiar with the ins and outs of trading ETFs (Exchange Traded Funds), we’ve put together a short article that’ll hopefully help you out.
What are ETFs?
ETFs are passive investment products that have developed into more than just mutual funds in recent years.
An ETF is dealt with on an exchange, much like stocks, which are priced continuously during the day. Factors such as supply and demand then determine what price an ETF will be bought or sold at.
Using this method ensures that investors can buy low and sell high, preventing significant deviations from fair value for any single investor to influence prices.
In addition to being traded during regular business hours, ETFs can also be sold outside of these times through an electronic trading platform.
The platforms are designed to facilitate access to liquidity when it’s needed, which is why they’re only available for certain products (i.e. arbitrage and futures).
These platforms may be more suitable for frequent traders or large investors who wish to buy or sell quickly without worrying about market conditions.
In contrast, individuals wanting to make small trades at reasonable prices will probably find that opening an account with their broker is a better option.
ETFs currently offer around 250 different investment opportunities within equities, fixed income bonds, and currencies on the Copenhagen Stock Exchange (CSX) and Nasdaq OMX Copenhagen.
It means that investors have a vast selection to choose from, including popular products like Apple, Nestlé and Microsoft.
How to trade?
To buy or sell an ETF on CSX or NasdaqOMX, you’ll first need to open an account with a broker. In practice, this is done by contacting one of the brokers mentioned below and asking them about beginning an account for trading on the Danish stock exchange – you can also do so online.
Once your account has been established, it’s time to fill out a form giving details about yourself and any other individual who will be transacting within your account (e.g. spouse).
Make sure you specify whether this person will be trading on their responsibility or with your consent.
By filling out this form, you signal to the broker that you want to open an account for trading ETFs on the Danish stock market.
Afterwards, you’ll need to contact a Danske Bank branch and set up a standing order (DAktiekøb) for buying shares worth whatever amount of money you wish within the ETFs that interest you (please note: not all brokers allow money transfers into ETFs, so check with your broker before saving any money).
Your bank uses this written instruction to prove what type of transaction has been requested. If no such education exists, the transaction can’t be executed as it’s impossible to confirm what was agreed upon.
The process is identical when selling and withdrawing from an ETF, which differs from selling or starting money in a mutual fund – these transactions can only be done through the broker.
It ensures that there’s always proof of what has been transacted with your bank even if you end up closing your brokerage account at some point (also note: withdrawals happen when selling shares in the market).
The process above is all you need to start trading ETFs on CSX or NasdaqOMX. Please note that using Interactive Brokers isn’t possible to enter winning orders directly into your brokerage account.
In this case, you’ll have to email them and ask them to execute a buy order for specific amounts of funds in your relevant ETFs every day, and then wait until the following day before your order can be managed.
You can also save money for future buys by signing up for the Deposits Bonus Program offered by Interactive Brokers Denmark.
This program allows you to earn interest on any money set aside for trading ETFs, which is not available with other brokers.
