Exchange-Traded Funds

Exchange-Traded Funds

A basket of assets that tracks an index, a commodity, or bonds, that can be traded like common stock on a stock exchange.

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Jacob Shiach
Jacob Shiach edited on 25 Apr 2018 1:57 am
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As an example, the SPY ETF is the most popular ETF, that can be bought and sold in the stock market. It is issued by SPDRSPDR, and tracks the S&P 500. That is, the basket contains all the companies in the S&P 500, in the correct quantities as to match the movements of the index. This has an advantage because most people don't have the money, nor the time, to go and buy the individual stocks of all 500 companies. Instead, the same exposure can be obtained by just owning the ETF. Buying a share of SPY is equivalent to buying a small fraction of each of the underlying company stocks. In units of 50,000 shares, anyone can redeem the ETF for the underlying shares, for a fee. Similarly, one can take the individual stocks in the correct quantities and create an ETF. Other common ETFs are QQQ (tracks NASDAQ), XLF (Financial Sector), and EEM (Emerging Markets). As with SPY, buying a share of each of these gives you ownership of a large array individual stocks.