What are exchange-traded funds (ETFs)?

Exchange-traded funds (ETFs) are investment funds that are traded on stock exchanges, much like individual stocks. This means they can be bought and sold throughout the trading day at market prices, which fluctuate based on supply and demand.

ETFs typically hold a diversified portfolio of assets, such as stocks, bonds, or commodities, and they aim to track the performance of a specific index or sector. Because they trade on an exchange, investors benefit from the flexibility and liquidity that come with being able to buy and sell them at any point during market hours. The use of ETFs enables investors to gain exposure to a wide range of asset classes with lower fees compared to traditional mutual funds, as they are usually passively managed.

Understanding the unique characteristics of ETFs, such as their trading mechanics, is essential for investors looking to incorporate them into a diversified investment strategy.