what is an etf

An ETF, or Exchange-Traded Fund, is an investment fund that holds a collection of assets such as stocks, bonds, or commodities. It functions like a basket of securities and is traded on stock exchanges just like individual stocks. This means you can buy and sell shares of an ETF throughout the trading day at market prices. ETFs typically track the performance of a specific index (such as the S&P 500 or FTSE 100) or other assets, allowing investors to gain diversified exposure to a range of securities in one single investment. Unlike mutual funds, which trade only once a day after the market closes, ETFs provide continuous pricing and trading flexibility during market hours. One major benefit of ETFs is diversification, as they spread investment across multiple assets, limiting volatility by balancing risks. They also tend to have lower expense ratios and brokerage commissions compared to buying individual stocks or actively managed funds. ETFs can be passively managed (tracking an index) or actively managed with strategies to try outperforming the market. In summary, an ETF combines the diversification and professional management of a fund with the trading flexibility and liquidity of a stock, making it a popular, cost-effective investment choice for many investors.