Exchange Traded Fund. Afundthattracksanindex, but can be traded like a stock. ETFs always bundle together thesecuritiesthat are in an index; they never track actively managed mutual fund portfolios (because most activelymanaged fundsonly disclose theirholdingsa few times a year, so the ETF would not know when to adjust its holdings most of the vestorscan do just about anything with an ETF that they can do with a normal stock, such as shortselling. Because ETFs are traded onstock exchanges, they can be bought andsoldat any time during the day (unlike mostmutual funds).
Theirpricewillfluctuatefrom moment to moment, just like any otherstocksprice, and an investor will need abrokerinordertopurchasethem, whichmeansthat he/she will have to pay acommission. On theplusside, ETFs are moretax-efficientthan normal mutual funds, and since they track indexes they have very lowoperatingandtransaction costsassociated with them. There are noorrequired to purchase an ETF. ThefirstETF created was theStandardand(SPDR, pronouncedSpider) in 1993.SPDRsgave investors aneasyway to track theS&P 500withoutbuyinganindex fund, and they soon become quite popular.
You may want to use anETFto follow a fund so that you can always know where it is standing.
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Getting into the world of stocks is tricky let alone trying to remember all the lingo likeETFs and RTIs.
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When my boss wanted to buy stocks in Russia, I suggested that he simply buy an indexETFthat was traded on the American stock market and would mimic the Russian stock market rather than risking putting funds into Russia directly.
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