An
ETF or
Exchange-traded Fund is another form of an investment portfolio made up of many investments that trade like stocks. It holds an assortment of securities that are intended to track the performance of an index and unlike many mutual funds; it can be bought and sold rapidly working in response to market movements similar to stocks or bonds that are traded throughout the day, mainly on major stock market exchanges. The American stock exchange is where ETFs are mainly found to be traded on.
There is no minimum investment and investors can sell short or buy on margin investing little or as much as they want. There are features and strategies that allow traders and investors to increase returns which mutual funds don’t offer, where it can no more than sell or purchase at the mutual fund’s closing price at the end of the day. The continuity of pricing throughout the day allows a trader to take advantage and react to the market condition on a basis that is intraday.
An investor can trade ETFs in cash throughout the days’ regular trading hours and even after hours on ECNs which is an advantage of being immune to market timing unlike open-end mutual funds where investors have to quickly trade in and out gaining from minor price variances to profit. With a closed-end fund or ETF it is different being that by the trading on the market the underlying assets of these funds are not affected in any way.
Profits can be made by the difference in share value of the underlying assets of the ETFs and trading of the ETF shares. When the demand is low ETF shares will trade at a discount and when it is high at a premium to net asset value.
In conclusion ETF can be a good investment when held over time.
