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.
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?
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Filed Under: Investing
About the Author: 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. Be sure to follow KC on Twitter or Google+.