How ETFs allow you to buy whole markets like a stock
Exchange-traded funds (ETFs) track the movements of an index, making it easy to invest in a whole host of markets – from Indonesian shares to gold. Like Amazon and Radiohead, ETFs have exploded in popularity since being launched in the 90’s – and there are now about 5,000 globally investing more than $5 trillion.
ETFs have many similarities with traditional tracker funds, which also copy the performance of an index such as the S&P 500. But their particular success is largely due to the ways they resemble stocks.
How are they like stocks? Well, as the name suggests, ETFs trade on exchanges (venues that connect people wanting to buy with those looking to sell). This means they can be bought or sold at any time during the working day – unlike most traditional funds, which can typically only change hands at the end of the day.
And, as with stocks, investors can also sell ETFs short (betting that the price will fall) or purchase options (wagers that the ETF will be trading above or below a certain price on a future date). They’re also like stocks in that some ETFs are incredibly popular with investors, changing hands thousands of times a second, while some trade much less frequently.
That’s all for our first session on ETFs. In the next session we’ll walk you through the different types of ETF available.
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