Exchange Traded Funds (ETFs) Glossary

Category: All Exchange Traded Funds (ETFs)

An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, The ETFs are traded much like stocks. Most ETFs track indexes and in some cases they called "index tracking stocks". As an example QQQQ tracks the Nasdaq 100 index, SPY tracks performance of the S&P 500 index, DIA track the Dow Jones Industrial index, etc. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Because of their stock-like features, low costs and tax efficiency  the ETFs become attractive to many investors and since their introduction they have fundamentally changed the way the investors construct their investment portfolios.

An ETF combines the valuation feature of a mutual fund or unit investment trust with the tradability feature of a closed-end fund. As a rule mutual funds can be purchased or redeemed at the end of each trading day and close end funds can be traded throughout the trading day. ETFs have been traded in the US since 1993 and in Europe they have been traded since 1999. Traditionally  the Exchange Traded Funds have been contracted as  index funds, however, in 2008 the United States Securities and Exchange Commission started to authorize the creation of actively-managed ETFs.

From the moment ETFs was introduced they offer public investors ability to invest into a pool of securities and other assets in similar to traditional mutual funds way, with exception that ETFs shares can be traded (bought and sold) throughout the day like stocks  and they can be sold short  like stocks on a stock exchange.