A client recently asked me to explain "What are Exchange Traded Funds?" So in today's Q&A, I will attempt to explain.
An Exchange Traded Fund or ETF is like a mutual fund in that it trades on a stock exchange. Like a mutual fund, it is nothing but a "container" to hold a basket of stocks or fixed income securities.
However, unlike mutual funds, ETFs trade during the day like another other stocks. Mutual funds trade at the close of the trading day and are priced at the market close based on closing value of its holdings.
Since ETFs trade like stocks, they can be bought, sold short throughout the day. You can place stop loss orders on they and buy put or call options on many ETFs.
ETFs are generally very low cost. A majority replicate an index of stocks both domestically or internationally.
We use ETFs almost exclusively at InTrust Advisors.
