An exchange-traded fund is a collection of securities—such as stocks—that tracks an underlying index The best known example is the SPDR S&P 500 ETF which tracks the S&P500index. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An exchange-traded fund is a marketable security, so it has an associated price that allows it to be easily bought and sold.
An ETF is called an exchange-traded fund since it’s traded on an exchange just like stocks. The price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market. This is unlike mutual funds which are not traded on an exchange, and trade only once per day after the markets close.
An ETF can own hundreds or thousands of stocks across various industries, or it could be isolated to one particular industry or sector. Some funds focus on only U.S. offerings, while others have a global outlook. For example, banking-focused ETFs would contain stocks of various banks across the industry.
Types of ETF:
There are various types of ETFs available to investors that can be used for income generation, speculation, price increases, and to hedge or partly offset risk in an investor’s portfolio. Below are several examples of the types of ETF
- Bond ETF- might include government bonds, corporate bonds, and state and local bonds—called municipal bonds.
- Industry ETF- track a particular industry such as technology, banking, or the oil and gas sector.
- CommodityETF – invest in commodities including crude oil or gold.
- CrrencyETF- invest in foreign currencies such as the Euro or Canadian dollar.