An ETF (exchange traded fund) is a security that tracks a single index (e.g. S&P 500, Russell 2000, etc.), a commodity (e.g. gold, silver, crude oil, etc.) or a group of assets/stocks. Buyers and sellers of ETFs pay a brokerage commission equivalent to the commission required to buy and sell a stock. While ETFs are similar to mutual funds in that they are often a collection of assets/stocks, they offer the advantage of being available for purchase and sale throughout the business day (especially helpful when the market is volatile), tend to have lower expenses, and with ETFs investors can better control entry and exit points with the use of stops, limit orders, etc.
Related Terms: Mutual Funds – Common Stocks – Dow Jones Industrial Average (DJIA) – Standard and Poor’s 500 Index – S&P 500 – New York Stock Exchange (NYSE) – Brokerage Account – Capitalization-Weighted Index – Stock Market Timing