What Does ETF Stand For?

Ever wondered what does ETF stands for? ETF is the abbreviation of exchange traded fund, sometimes people will refer to this as electronic traded fund but the first is more correct. So that is it, that is all you wanted to know, you can click away from the page now.

Well I guess I will say a little more on the subject.

An ETF is a mutual fund which is traded on a stock exchange, blending the primary aspects of both traditional mutual funds and individual stocks. For more information on etfs vs. mutual funds go here.  Approximately 30% of daily trading within the United States consists of ETFs. These funds have been around since roughly the early 1980s, but made their true introduction back in 1993. Since then, ETFs have become a major force within the global financial system, allowing investors to take interest in a large assortment of commodities, companies, and industries. Now, let’s see what it does best.

What does an ETF do?An ETF’s job is to equal an exact market index and ensuring a fund management style referred called passive management, the main distinguishing feature of ETFs which offers numerous benefits for those investing in index funds. With passive management, a fund manager keeps the funds in line with its index by making slight modifications every so often—a far cry from the actively managed fund, where the manager constantly trades assets in order to surpass the market. Investors and market watchers alike first noticed this trend involving market indexes—where they regularly exceeded actively managed portfolio funds—during the late 1970s. Essentially, based on these facts, market indexes are better investments compared to managed funds, and long-term investments strategy are ideal, in order to garner the benefits of index growth. ETFs combine the minimalism of trading a single stock with the diversity of a broad portfolio. As a result, investors are able to purchase short sell shares, shares on margin, and with the idea of investing in the long term. However, because the worth is based on a principal index, ETFs have the added benefits of larger expansion than shares found in lone companies, along with what most investors believe to be the flexibility that accompanies investing in asset types, regions, sectors, as well as whole markets.

what does etf stand forWhat makes ETFs unique?

Although ETFs are traded on an exchange like stocks, the process that creates shares is considerably different. Unless a company decides to issue extra shares, the supply of an individual stock’s shares being traded on the market is exact. However, if demand increases for ETF shares, authorized participants can immediately create supplementary shares. Additionally, expense ratios for ETFs are typically lesser than a mutual fund. When ETFs are brought and sold, the same commission paid on a regular order is paid to a broker.

Why should I use ETFs?

One reason to use ETFs is due to their high level of efficiency, the same reason they have become the preferred method for multiple investment strategies. Lower executive costs—alongside lower capital gain taxes—place a larger portion of one’s investment dollar to work within the stock market. TradeKing is one good option for helping you get started with ETF’s, if you are interested be sure to check them out here. Also be sure to check out my TradeKing review for more information on using TradeKing.

So how many of you could honestly say you knew does ETF stand for before reading this?

Author: KC Beavers

KC Beavers is a semi-retired entrepreneur. The subject of personal finance has always fascinated him. In an effort to not bore those around him with all his love of personal finance as much he has come here to bore all of you instead.

Daniel Lord
Daniel Lord

While an excellent way to save on management fees found in many actively managed funds, I was charged an extra commission for purchasing an ETF. May go for an index mutual fund next time.