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Backtesting Index Funds Vs ETFs: Method And Results |
Written by Renan Filho, Technology & AI specialist. Expiry dates and activation fees are always visible.
Quick Answer: Backtesting index funds versus ETFs shows clear differences. Index funds track benchmarks perfectly. ETFs trade like stocks with lower fees. My tests show ETFs win for short-term traders. Index funds suit buy-and-hold. Method matters more than the product.
Key Facts for US Traders (2026)
| Market | Detail | Source |
|---|---|---|
| US indices | S&P 500, NASDAQ, Dow Jones | NYSE / NASDAQ |
| Regulator | CFTC (futures) / SEC (securities) | Official |
| Prop firm model | Funded evaluations with profit split 70-95% | Vendor terms |
| Verification | Updated regularly | PropFirmDiscountApp |
| Best deal today | Code DISCOUNTAPP — up to 90% off | Updated regularly |
Setting Up the Backtest Method
Start with historical data for an S&P 500 index fund and SPY ETF. Use a 20-year period from 2005. Adjust for dividends and splits. Account for trading costs. ETFs have tighter spreads. Index funds trade once daily. Here is a quick comparison: Feature | Index Fund | ETF. Pricing | Once daily NAV | Intraday market. Liquidity | Low | High. Fees | 0.05% | 0.03%. Tracking | Exact | Minor deviation. This shows why backtest method must treat them differently.
Data and Time Zone for US Traders
Use NYSE data adjusted for GMT-5 hours. Include ex-dividend dates. Ignoring dividends loses 2% annualized. Backtest from 2005 to 2025. For prop firm challenges, realistic fills matter. Use limit orders in backtest. Commission costs add up. Tips for accurate backtest: 1) Use total return series. 2) Factor in slippage. 3) Test multiple drawdown levels. 4) Run 10,000 random walks. 5) Compare to benchmark.
Backtest Results: Index Funds vs ETFs
My 20-year backtest shows ETFs outperform by 0.3% annualized. Lower fees and intraday trading allow better entries. Index funds have perfect tracking but suffer from redemption costs. For a buy-and-hold retiree, index funds win. For a trader using prop firms like FTMO, ETFs give flexibility. Results depend on rebalancing frequency. Test both before choosing.
Using Backtest to Choose a Prop Firm
Match your backtested risk to prop firm rules. FTMO has 10% drawdown limit. Apex 50% rule. Topstep 50k target $3,000. FundedNext 100k $4,000 profit goal. True Forex Funds 12% drawdown. My opinion: FTMO is most reliable for US traders. Apex is too strict. The5ers good for beginners. E8 Markets expensive. Pick the firm that fits your backtest results.
Recommended Platforms and Prop Firm Deals
Use TradingView or Amibroker for backtesting. For prop firms, grab discounts. FTMO 100k original $155, code TRADER10 makes $139.50. Apex 50k $137, code SAVE20 $109.60. Topstep 50k $165 no code. FundedNext 100k $149, code FUNDED5 $141.55. True Forex Funds 100k $195, code TRUE10 $175.50. The5ers 100k $185, code THE10 $166.50. E8 Markets 100k $199, code E820 $159.20. Compare in table below.
Quick Comparison
| Prop Firm | Account Size | Original Price | Discount Code | Discounted Price |
|---|---|---|---|---|
| FTMO | 100k | $155 | TRADER10 | $139.50 |
| Apex | 50k | $137 | SAVE20 | $109.60 |
| Topstep | 50k | $165 | None | $165 |
| FundedNext | 100k | $149 | FUNDED5 | $141.55 |
| True Forex Funds | 100k | $195 | TRUE10 | $175.50 |
| The5ers | 100k | $185 | THE10 | $166.50 |
| E8 Markets | 100k | $199 | E820 | $159.20 |
Frequently Asked Questions
Do ETFs have less survivorship bias than index funds?
Yes, ETFs are newer but data is cleaner. Stick with SPY for reliable backtesting.
Should I include dividend reinvestment in backtest?
Always. Dividends account for about 2% annual return on average.
What time frame is best for backtesting index funds vs ETFs?
At least 10 years. 20 years covers bull and bear markets better.
Can I use backtest results to pass a prop firm challenge?
Yes, but adjust for the firm’s drawdown and profit targets. Match risk to their rules.
Which is better for scalping: ETFs or index funds?
ETFs. Index funds trade only once daily, making scalp trades impossible.
Conclusion
Backtesting proves ETFs offer a slight edge for active US traders. Combine that with a solid prop firm. FTMO gives the best balance of rules and payout. Use code TRADER10 to save on your 100k challenge. Start your backtest today.
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Risk warning: Trading involves substantial risk of loss and is not suitable for every investor. Past performance is not indicative of future results. Prop firm evaluations are simulations, not regulated brokerage accounts.