What is an exchange-traded fund (ETF)?

An exchange-traded fund (ETF) is defined as a type of investment fund that is traded on stock exchanges, similar to individual stocks. ETFs consist of a collection of assets, such as stocks, bonds, or commodities, and offer investors a way to invest in a diversified portfolio without having to purchase the individual securities themselves.

This structure allows ETFs to be bought and sold throughout the trading day at market prices, providing liquidity and flexibility to investors. The investment strategy of an ETF can vary widely, including focus areas such as specific sectors, geographic regions, or types of securities like equities or fixed income.

The distinct characteristics of ETFs, including their trading flexibility and the way they provide exposure to a range of financial instruments, differentiate them from single stocks and other forms of investment products. Understanding the operational framework and benefits of ETFs is crucial for navigating investment choices in the financial market.