Exchange Traded Funds (ETFs) are a great way to play the market as a whole, a specific industry, or an index. They trade like stocks as their price fluctuates each day, experiencing price changes throughout the day so its value isn't calculated like a mutual fund. To top it off, buying them is as easy as making a stock trade online. Let's explore.
ETFs Broken Down
An Exchange Traded Fund (ETF) is simply a security that tracks an index, group of stocks, commodity, etc. but is traded like a stock on a stock exchange. The first big point to note is that an ETF is NOT a mutual fund because ETF's prices change throughout the day just like a stock.
Let's say that you are bullish on tech stocks like Apple (AAPL ), Microsoft (MSFT ), Cisco (CSCO ), and Alphabet (GOOG ). Well we know that if we only have several thousand dollars to spend it will be very tough to buy relative positions in these companies. But with ETF's we could simply buy an ETF like the Select Sector SPDR (XLK ) which holds positions in all of these companies and more. We buy XLK like a stock, it trades like a stock, and in reality we are holding a securities that simply tracks a group of stocks.
The most popular ETF's are the index funds. Want to invest in the NASDAQ, then buy a position in what is called the "Q's", or ETF (QQQ ). Want to be short on the NASDAQ, then pick yourself up some shares of the (QID ), which is the Qs ultrashort proshares. There are also popular ETF's that track the S&P 500 which is the (SPY ), and the Dow Jones Industrial's has the (DIA ). Bottom line here is that really every index has an ETF long and short.
ETF's can be used to get yourself invested in anything, anywhere, for example:
With an endless offering of products you can see how easy it can be to place your portfolio in a specific area of the market, or diversify across all sectors and markets around the world.