I don't quite understand the purpose of SPY (SPDR S&P 500 ETF Trust) and other S&P500 ETF.

If SPY is designed to track the performance of S&P500,

why not just buy S&P500(like index CFD) ?

Thank you.

  • 5
    Your question is unclear. Buying a S&P 500 ETF is a way to "buy the S&P 500". What are you trying to compare with SPY?
    – BrenBarn
    Apr 20 '15 at 4:39

The S&P500 is an index, not an investment by itself. The index lists a large number of stocks, and the value of the index is the price of all the stocks added together.

If you want to make an investment that tracks the S&P500, you could buy some shares of each stock in the index, in the same proportions as the index. This, however, is impractical for just about everyone.

Index mutual funds provide an easy way to make this investment. SPY is an ETF (exchange-traded mutual fund) that does the same thing.

An index CFD (contract for difference) is not the same as an index mutual fund. There are a number of differences between investing in a security fund and investing in a CFD, and CFDs are not available everywhere.

  • I mistakenly think of index itself as a tradable asset. I guess it's because I have a CFD account and it's convenient for me to sort of directly "buy/sell" an index. Thanks for your answer. Apr 20 '15 at 5:19
  • 3
    @user3168078 When you buy the index via CFD, do you get the dividends that holders of the ETF would have got? Have you considered the total return of the S&P 500 including dividends, and not just the index value? Apr 20 '15 at 13:58
  • You cannot buy the S&P 500, but you can buy /sell the SPX future/option, if you dont want to trade SPY.
    – Victor123
    Apr 20 '15 at 14:23
  • 1
    Depending upon your trading timeframe, you might find that the financing costs of the S&P 500 CFD are higher than the ETF (or even an ETF CFD) - and that the index CFD is probably based upon futures rather than the index. Apr 21 '15 at 4:25
  • @Chris W. Rea I guess yes, but I did not consider much because I traded CFD before in a very short-term style(and lose some money. It's essentially gambling with odds hugely against retail trader) Apr 21 '15 at 11:20

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