is an investment fund traded on stock exchanges, much like stocks.
An ETF holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value, although deviations can occasionally occur.
Most ETFs track an index, such as a stock index or bond index.
ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.
Types of ETFs
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 ETFs.
Bond ETFs - might include government bonds, corporate bonds, and state and local bonds—called municipal bonds.
Industry ETFs - track a particular industry such as technology, banking, or the oil and gas sector.
Commodity ETFs - invest in commodities including crude oil or gold.
Currency ETFs - invest in foreign currencies such as the Euro or Canadian dollar.
Inverse ETFs - attempt to earn gains from stock declines by shorting stocks. Shorting is selling a stock, expecting a decline in value, and repurchasing it at a lower price.
How to Buy and Sell ETFs
ETFs trade through online brokers and traditional broker-dealers. Read more about how to start investing.