Exchange Traded Funds (ETF)

Financial Dictionary -> Investing -> Exchange Traded Funds (ETF)

Exchange Traded Funds (abbreviated ETF) are similar to stock, as they are traded on stock exchange, but unlike stock they act as a security that tracks a series of assets, commodities or an index itself. Their value fluctuates every day as they are traded.

Pretty much anything you can do with regular stock, such as selling short, you can do with exchange traded funds and because they are listed on exchanges like normal stock they can be traded at any moment in the day unlike most types of mutual funds.

Similar to any other types of stock an EFT's value might change from hour to hour, and investors will usually trade through a broker so that they can purchase them, which means a commission will have to be paid to the broker for the purchase. Because EFT's track indexes they usually have lower transaction costs and operating costs, and they are also more tax efficient than other types of securities.

"The Spider" is one of the most common exchange traded funds. Abbreviated SPDR this fund tracks the S & P 500 index and is denoted by the SPY symbol. It was also the first ever EFT created, beginning trading in 1993.

Some opposers of exchange traded funds claim that they are sometimes used to control and manipulate the market and some experts even gone as far as to claim that they may have been partly to blame for the market collapse in 2008.