What Is a Stock Exchange-Traded Fund (ETF)?

A stock exchange-traded fund (ETF) is a financial instrument that follows a certain selection of stocks. These ETFs trade on stock exchanges like regular stocks and follow equities like an index.
They can follow individual stocks or a whole index of equities. Shares of a stock exchange ETF provide investors with exposure to a basket of equities while limiting the company-specific risk associated with particular stocks, allowing them to diversify their portfolios at a low cost.

  • An exchange traded fund (ETF) is a basket of securities that trade on an exchange, just like a stock

  • ETF share prices fluctuate all day as the ETF is bought and sold; this is different from mutual funds that only trade once a day after the market closes

  • ETFs can contain all types of investments including stocks, commodities, or bonds; some offer U.S. only holdings, while others are international

  • ETFs offer low expense ratios and fewer broker commissions than buying the stocks individually