Exchange-Traded Fund - ETF
A security that tracks an index and represents a basket of stocks like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold.
Investopedia Commentary
Because it trades like a stock whose price fluctuates daily, an ETF does not have its net asset value (NAV) calculated every day like a mutual fund.
By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share.
Another advantage is that the expense ratios for most ETFs are lower than the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.
The most widely known ETFs are SPDR (Spider), which tracks the S&P 500 index and QQQQ, which tracks the Nasdaq-100.
Related Links
Advantages Of Exchange-Traded Funds
Introduction To Exchange-Traded Funds
An Inside Look At ETF Construction
Index Investing Tutorial
See also: Diamonds, Index, Index Fund, iShares, Margin, QQQ, Short Selling, Spiders
Also spelled: EFT, Exchange Traded Fund, exchange fundETF