Exchange Traded Fund (ETF)

What Is an Exchange Traded Fund (ETF)?

An Exchange Traded Fund (ETF) is a single stock traded on an exchange that represents a basket of securities, including stocks, bonds, commodities, and cryptocurrencies.

ETFs offer similar benefits to mutual funds, allowing investors to diversify their returns by investing in a mix of asset classes.

Exchange Traded Fund (ETF)

Exchange Traded Fund (ETF) | Source: Investopedia

Unlike mutual funds, ETFs can be bought and sold throughout the day, fluctuating prices accordingly.

Investors commonly use ETFs to diversify their portfolios across multiple sectors, although some ETFs focus on a single sector.

ETF Dynamics

ETFs can be either passively or actively managed, with the latter involving a portfolio manager making investment decisions not tied to an underlying index.

ETF investors can also engage in short selling, which involves selling a stock not currently owned and repurchasing it later when the price falls.