2. How to invest in ETF?

What Is an ETF?

An exchange-traded fund is a type of investment fund that trades like a stock. You can buy and sell ETFs on the same exchanges as shares of stock, most commonly the New York Stock Exchange and Nasdaq.

  • Like mutual funds, a single purchase can give you access to diverse underlying assets. With an S&P 500 index ETF, for example, buying a single share gives you exposure to 500 stocks at once. That makes ETFs great for new investors who don’t have the assets to build a diverse portfolio on their own.
  • Each ETF has a name and ticker symbol. Using that ticker, you can trade during market hours. The biggest and oldest ETF is the SPDR S&P 500 from State Street Global Advisors. Also called the “Spider” — or by its ticker, SPY — it holds a massive $300 billion in assets.
  • All ETFs together hold almost $6.2 trillion. That compares to $21.3 trillion held in mutual funds.

As exchange-traded vehicles, ETFs offer the opportunity to use stop orders. They can also be bought on margin and offer other trading characteristics of individual stocks. Transaction fees are generally low at most discount brokers. And many brokers even offer free trades.

ETFs generally have to disclose their underlying holdings on a daily basis. This is part of the reason there are far more index ETFs than those that are actively managed.

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