ETF
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Join →What Is an ETF?
An exchange-traded fund (ETF) is an investment fund whose shares trade on an exchange. An ETF can hold a portfolio of assets such as stocks, bonds, commodities, or other instruments, depending on its mandate.
Many ETFs are designed to track an index, sector, theme, commodity, or other reference. Buying one ETF share can therefore give us exposure to a diversified basket rather than to a single company.
Why ETFs Matter to Traders and Investors
ETFs can provide diversification, transparent exchange trading, and access to broad market segments. However, an ETF still has its own price, liquidity, spread, and trading characteristics. The price of an ETF can also differ temporarily from the underlying value of its holdings.
Example
If an ETF tracks a broad equity index, buying the ETF gives us exposure to the index constituents through a single tradable instrument. We do not directly own each underlying company merely because we own the ETF.
Key Terms
ETF, exchange-traded fund, underlying assets, index, diversification, tracking.
Knowledge Check
- What is an ETF?
- How can an ETF provide diversification?
- Why should we still examine an ETF’s liquidity and spread?