Do you know what an ETF stands for? ETF stands for Exchange Traded Fund. In simple words, an ETF is a collection of securities. It may have a collection or combination of stocks, bonds, and commodities. In fact, if you have a closer look, you will find many similarities among ETF & stocks. Also, when you buy or sell ETfs, you get the benefits of Stocks as well as Mutual funds. But, a good rule of thumb in investment is to get familiar first with the financial product or service before you invest your money in it. With this in mind, I am more than happy to tell you that "What is an ETF & How does it work" is the topic for today's discussion.
Also, you will get an overview about ETFs vs Mutual Funds. In case if you are not a great fan of reading, you can reach out to our experts and can have free consultation. Else, read on this helping post and learn something new & useful.
What is an ETF account & Stock?
You can think of an ETF as a pool of different financial products like stocks, bonds & commodities. The best thing about it is that you can buy ETFs through a brokerage firm on a stock exchange with ease of mind. And when you find any increase in the value of ETFs, you can sell it hassle-freely and gain benefits. Many experts have described it as one of the most valuable & beneficial assets because it is available on all assets ranging from traditional investment to alternate assets including basic goods, services & currencies.
Introduced in 1993 formerly known as SPY or Spider, total ETF investment worth is more than $1 trillion now. According to the reports, in the U.S stock market more than 1000 ETF products are available. A dedicated brokerage account is necessary to sell & buy ETFs which is known as an ETFs account. And all the stocks you get in an ETF known as ETF stock.
How does an ETF work?
The working principle of an ETF is quite similar to share or stock trading. The ETF trading gets started with the opening of the stock exchange. Also, it has a ticker symbol and intraday price data. Figures like price, demands, availability and fluctuation are all easily accessible on any stock trading site.
A unique thing about an ETF is that the number of shares outstanding of an ETF can change daily. Why? Because the non-stop introduction of new shares and the redemption of current shares never stop. This simultaneous process of creation & use of ETFs keeps the market price of ETFs in line with their underlying securities. With the help of arbitrage mechanism ETFs price react in response to the underlying asset value.
Are ETFs a good option for investment?
Undoubtedly, there are many advantages of ETFs investment. The cool thing about ETFs is that you can buy & sell it on the same day before the shutdown of the stock market. Lower fee is the second benefit that comes with an ETF that investors love. Moreover, handsome tax benefits & right to apply limit order, stop-loss order & buy on margin feature make it better than Mutual funds.
ETF Vs Mutual Fund: What is a difference?
Many readers have asked how ETFs are different from Mutual funds? Now today I am delighted to answer this one of the most frequently asked questions.
The amazing fact of the matter is that ETF & Mutual funds both share many similarities. But, once you take a closer look, you will find there are some key differences as well. Find below some key dissimilarities in the way they are managed and traded.
ETFs could be traded as long as the stock market is open. But, Mutual funds trading starts once the stock market is closed.
Mutual fund trading always lies in the hand of the dedicated fund manager. On the other hand, ETF trading depends upon the market index.
Usually, Mutual fund investment demands a fair amount of money. But, this is not the case with ETFs.
That's the end of today's post: What is an ETF & how does it work? We also discussed the difference between EFTs & Mutual funds. We are sure you will find all the information quite helpful & effective. If any doubt is left in your mind or need assistance to buy & sell ETFs, feel free to contact us for general guidance.