Exchange Traded Fund ETF
An ETF is an Exchange Traded Fund. This is a security that tracks an index, a commodity or some other basket of assets in the same way that an index fund would track the asset. Because the ETF trades like a stock on an exchange its price will vary throughout the day and can be bought and sold like a stock.
Another feature that distinguishes ETFs from mutual funds is that because its stock price fluctuates daily, it does not have a net asset value (NAV).
The advantages of ETFs over mutual funds are:
- You get the diversification of an index with the ability to
- sell short
- buy on margin
- buy as little as one share.
- The expense ratio is usually lower than those of the comparable mutual fund.
- Commissions are the same as any regular order.
One of the most widely known ETFs is called the
SPDR (Spiders), which tracks the S&P 500 index and trades under the symbol SPY. Others are the
Diamonds (DIA) which tracks the
DJIA, and the NASDAQ-100 Index Tracking Stock (
QQQQ).
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