What is an ETF? (with photos)

An ETF is an investment based on the stock market.

An ETF is an abbreviated term for “Exchange Traded Fund”, which is a type of investment based on the stock market. An ETF is an investment plan that can be traded like stocks on many stock exchanges around the world. Generally, an ETF works to replicate a standard element within the stock exchange, such as the Standard & Poor 500 index. An Exchange Traded Fund may also attempt to replicate a specific market, such as the technology market or the automotive market. On the other hand, an ETF might try to model itself after a specific commodity, such as oil or silver.

While most ETFs are passively managed index funds, in 2008 the US Securities and Exchange Commission (SEC) approved the development of the first actively managed ETF.

The specific composition of the ETF and the complexities of the way it works are defined differently in different parts of the world. There are, however, some universal elements of an ETF. Firstly, an Exchange Traded Fund must have a listing on the stock exchange and must be able to trade on an ongoing basis. An ETF can also be recognized by the way its value is assigned. The value of an ETF is directly related to the value of the assets that comprise it.

The shares that make up an Exchange Traded Fund are sold freely on the open market.

The qualities of an ETF offer some particular advantages that, for some investors, make them more attractive than traditional open-ended investments. As an ETF works on a diversified structure, the cost of the fund is low and so is its turnover.

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The shares that make up an Exchange Traded Fund are sold freely on the open market. However, ETF shares are usually only acquired by large investors. While shares in ETFs are usually held for a long time before investors exchange them for spin, some aggressive hedge funds also make use of ETFs to increase their value.

Some of the most popular exchange-traded funds are listed below with their index symbol:

Standard & Poor’s 500 Index Deposit Receipts (SPY: AMEX) Nasdaq Stock Index-100 (QQQ: AMEX) DIAMONDS Trust (DIA: AMEX) iShares S&P 500 (IVV: AMEX) Standard & Poor’s MidCap 400 SPDRs ( MDY: AMEX) iShares Russell 2000 (IWM: AMEX) iShares MSCI EAFE (EFA: AMEX) Total Stock Market VIPERs (VTI: AMEX) iShares SmallCap 600 (IJR: AMEX) Customer Service Industry SPDR (XLV: AMEX)

If you are interested in investing in an ETF, first consider whether this is the best type of investment for your financial profile. Consider consulting a financial services professional. If you decide that investing in an ETF is the right move for you, you might want to consider some of the funds above.

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