What is Index Shares (ETFs)?

Exchange Traded Funds (also called "index shares" and short "ETFs") track a specific stock market indexes (basket of securities) or indexes that track commodities. The ETFs are traded continuously on the major exchanges. You may buy and sell them like an ordinary stock. This is the simplest way to invest into the indexes. You may use ETFs to invest into the specific market sector covered by indexes, you may invest into commodities like gold, silver and crude oil, you may invest into currencies and etc.

The pioneering big daddy of Exchange Traded Funds was the Standard & Poor's Depositary Receipts (also known as SPDRs and pronounced as "Spiders") which was introduced in 1993 on the AMEX (American Stock Exchange) and since then traded under the "SPY" symbol. After SPY, the DIA and QQQ were lunched on the same AMEX Exchange. DIA (also known as "diamond") tracks the Dow Jones Industrial index and by investing into it, you basically are buying shares of the 30 stocks from the DJI index basket. The QQQ (also named as "qubes") stock was introduced in March of 1999. This Exchange Traded Fund tracks the Nasdaq 100 index and covers hi-technology (non-financial) market sector. In a short period of time (not without help of "internet bubble"), the QQQ stock had become the most traded stock on the market. Right now the QQQ is still in the top 10 of the most traded ETFs. The first place belongs now (as of 2013) to the SPY which has became not just the most traded ETF but it has become the most traded by volume stock in the world.

One of the main advantages of the ETFs is that it could be traded as a simple stock. Before introduction of ETFs the only way to invest into indexes was to buy index tracking funds that were usually traded only once a day. Such unflexibility was not extremely attractive to majority of the traders.

With lunching of ETFs, the traders received an ability to trade indexes (ETFs) during the trading hours, sell indexes short. Margin trading has become possible for indexes as well. This flexibility started to atrack more and more traders. Speculators and serious long-term investors, retail and institutional traders have found the ETFs as one of the easiest way to invest into the stock market by diversifying with a single transaction (example: by buying a share of QQQ you are diversifying among 100 hi-tech companies that are listed in the Nasdaq 100).

Perhaps the greatest benefit of ETFs is that traders do not have to dedicate a lot of time to fundamentals. There is no need to perform such complex job as the selection of stocks for investing. There is no need to analyze companies' reports and balance sheets. There is no need to monitor a company's' announcements and other news. All of that is already done by companies that manage indexes. They are professionals and they track the performance of all stocks listed in their indexes by replacing weak with strong.

All of the above (ability of easy trading, diversification, easier analysis and etc) is placing the ETFs on the first spot when it comes to the choice of investing into the stock market.