Exchange Traded Funds-ETFs

ETFs were first created in 1993. Since that time, ETFs represent over 2 trillion dollars globally, and over a trillion in the U.S. In any given trading day, ETFs can make up as much as 30% of trading volume.

ETFs are essentially a special kind of mutual fund, pegged to a particular index, such as the S & P. This fund is like a mutual fund in several ways: (1) It is managed, (2) it is structured to a group of assets in an index, (3) it is regulated like a mutual fund.

However, it is very different from a mutual fund as well. With mutual funds, the process of completing a “buy” or “sell” order is processed only after the close of business of the trading day. Whether you enter your order at 9 a.m. or at 3 p.m., it will only be processed after that market closes. In addition, when you buy or sell a mutual fund you work directly with the fund manager, not a broker. These are not bought and sold on the exchanges.

Conversely, an ETF can be bought or sold on an exchange just like a regular stock, and you can purchase or sell an ETF at any time during the day, and even sell it the same day. This is called “intraday”trading. This gives investors a lot of flexibility as they can take advantage of rises and falls in the market during the day, and trade on the margins or short them as well. Because ETFs are traded on the exchanges, they are bought and sold through brokers just like regular stocks.