Exchange Traded Fund, or "ETF",

An exchange traded fund (ETF) is a pool of stocks or commodities trading as a single stock on a stock exchange. Hence the name exchange traded fund. Unlike mutual funds, an exchange traded fund may be bought on margin, sold short, traded intraday, or in any other way traded like a stock. As with stocks, investing in an exchange traded fund will incur trading costs. Often, an exchange traded fund will mimic a stock index; popular exchange traded funds are the DIA (mimics the Dow Jones Industrial Index) and the QQQQ (mimics the NASDAQ 100). Other exchange traded funds can track specific industries, regions, or investing styles. Exchange traded fund family examples are iShares, VIPERs, and SPDRs. Exchange traded fund shares can be sold in the secondary market or large shareholders (i.e. institutions) can redeem for stock held by the fund itself, which can help investors in an exchange traded fund avoid capital-gains taxes.

Last updated on May 14, 2009 by Jack Parsons