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Raw Queries and Responses

1. Shard Calculation

Query:

Response:

Calculated Shard: 148 (from laksa164)

2. Crawled Status Check

Query:

curl -X POST \
  'http://laksa148.int.ahrefs:8124/' \
  -H 'Content-Type: text/plain' \
  -H 'X-ClickHouse-Database: crawler3' \
  -H 'Authorization: Basic YXBpOg==' \
  -d 'SELECT getAhrefsURLFromUnparsed(src_unparsed) AS found_url, ifNull(toUnixTimestamp(download_stamp), 0) AS crawl_time, ifNull(toUnixTimestamp(props_url_first_seen), 0) AS first_indexed_time, download_http_code AS http_code, src_unparsed AS src_unparsed, src_root_hash AS src_root_hash, history_drop_reason AS history_drop_reason, meta_title AS meta_title, meta_descriptions AS meta_descriptions, attrs_boilerpipe_text AS attrs_boilerpipe_text, attrs_markdown AS attrs_markdown, attrs_readable_markdown AS attrs_readable_markdown, meta_canonical AS meta_canonical FROM crawler3.page_info_local FINAL PREWHERE (src_root_hash, src_unparsed) IN ((getAhrefsRootHashFromUnparsed(getAhrefsUnparsedNoserviceFromURL(\'https://www.investopedia.com/terms/e/etf.asp\')), getAhrefsUnparsedNoserviceFromURL(\'https://www.investopedia.com/terms/e/etf.asp\'))) FORMAT JSONEachRow'

Response:

{"found_url":"https:\/\/www.investopedia.com\/terms\/e\/etf.asp","crawl_time":1776326789,"first_indexed_time":1450673323,"http_code":200,"src_unparsed":"com,investopedia!www,\/terms\/e\/etf.asp s443","src_root_hash":"7273739457760125548","history_drop_reason":null,"meta_title":"Exchange-Traded Fund (ETF): What It Is and How to Invest","meta_descriptions":["Learn what an exchange-traded fund (ETF) is, how it works, its key benefits, risks, and simple steps to start investing in ETFs with confidence for beginners."],"attrs_boilerpipe_text":"Key Takeaways\nAn\nexchange-traded fund\nis a basket of securities that trades on an exchange, just like a stock.\nETF share prices fluctuate throughout the trading day, unlike mutual funds, which only trade once a day after the market closes.\nETFs offer low expense ratios and fewer brokerage commissions than buying stocks individually.\nGet personalized, AI-powered answers built on 27+ years of trusted expertise.\nAn exchange-traded fund (ETF) is an investment fund that holds multiple underlying assets. It can be bought and sold on an exchange, much like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of stocks—even specific investment strategies.\nVarious ETFs are available to investors\nfor income generation, speculation, or hedging risk in a portfolio. The first ETF in the U.S. was the SPDR S&P 500 ETF (\nSPY\n), which tracks the S&P 500 Index.\n1\nExchange-traded funds are a simple, affordable, and easy way to invest, helping you diversify your portfolio in a low-cost way.\nInvestopedia \/ Zoe Hansen\nHow ETFs Work\nIn the U.S., ETFs must be registered with the Securities and Exchange Commission (SEC).\n2\nMost ETFs are set up as\nopen-ended funds\nand are subject to the\nInvestment Company Act of 1940\n, except where the rules modify their regulatory requirements.\n3\nOpen-ended funds do not limit the number of investors involved in the product.\nVanguard's Consumer Staples ETF (\nVDC\n) tracks the MSCI US Investable Market Consumer Staples 25\/50 Index and has a minimum investment of $1.00.\n4\nThe fund holds shares of all 105 companies on the index, some more familiar than others because they produce or sell consumer items. A few of the companies held by VDC are Procter & Gamble, Costco, Coca-Cola, Walmart, and PepsiCo.\n5\nThere is no transfer of ownership because investors buy a share of the fund, which owns the shares of the underlying companies. Unlike mutual funds, ETF share prices are determined throughout the day. A mutual fund trades only once a day after the markets close.\nImportant\nVolatility is limited with an ETF because its holdings are diversified across various assets. Industry ETFs are also used to rotate in and out of sectors during\neconomic cycles\n.\nTypes of ETFs\nOnline brokers\nmay allow you to invest in a wide variety of ETFs, including the following.\nPassive ETFs\n:\nPassive ETFs\naim to replicate the performance of a broader index—either a diversified index such as the S&P 500 or a more targeted sector or trend.\nActively managed ETFs\n: These ETFs don't target an index. Instead, portfolio managers make decisions about which securities to buy and sell.\nActively managed ETFs\noffer benefits over passive ETFs, but they charge higher fees.\nBond ETFs\n: Used to provide regular income to investors. Distribution depends on the performance of underlying bonds, which may include government, corporate, and state and local bonds, usually called\nmunicipal bonds\n. Unlike their underlying instruments,\nbond\nETFs\ndo not have a maturity date.\n6\nIndustry or\nsector ETFs\n: A basket of stocks that track a single industry or sector, like automotive or energy. The aim is to provide diversified exposure to a single industry, one that includes high performers and new entrants with growth potential. BlackRock's iShares U.S. Technology ETF (\nIYW\n), for example, tracks the Russell 1000 Technology RIC 22.5\/45 Capped Index.\n7\nCommodity ETFs\n: Invest in\ncommodities\nlike crude oil or gold.\nCommodity ETFs\ncan diversify a portfolio. Holding shares in a commodity ETF is less expensive than owning the physical commodity.\nCurrency ETFs\n: Track the performance of currency pairs and can be used to speculate on the exchange rates of currencies based on political and economic developments in a country. Some use them to diversify a portfolio, while importers and exporters use them to hedge against\nvolatility\nin currency markets.\nBitcoin ETFs\n: The\nspot Bitcoin ETF\nwas approved by the\nSEC in 2024\n.\n8\nThese ETFs expose investors to Bitcoin's price moves in their regular brokerage accounts by purchasing and holding Bitcoin as the underlying asset.\nBitcoin futures ETFs\n, approved in 2021, use futures contracts traded on the Chicago Mercantile Exchange and track the price movements of bitcoin futures contracts.\n9\nEthereum ETFs\n:\nSpot Ether ETFs\n provide a way to invest in \nEther\n, the native currency of the Ethereum blockchain, without directly owning the cryptocurrency. In May 2024, the SEC allowed Nasdaq, the Chicago Board Options Exchange, and the NYSE to list ETFs holding Ether.\n10\nIn \nJuly 2024\n, the SEC officially approved nine spot Ether ETFs to begin trading on U.S. exchanges.\nInverse ETFs\n: Earn gains from stock declines without having to\nshort stocks\n. An inverse ETF uses\nderivatives\nto short a stock. Inverse ETFs are\nexchange-traded notes (ETNs)\nand not true ETFs. An ETN is a bond that trades like a stock and is backed by an issuer such as a bank.\nLeveraged ETFs\n: A\nleveraged ETF\nseeks to return some multiples (e.g., 2× or 3×) on the return of the underlying investments. If the S&P 500 rises 1%, a 2× leveraged S&P 500 ETF will return 2% (and if the index falls by 1%, the ETF would lose 2%). These products use debt and derivatives, such as options or futures contracts, to leverage their returns.\nFast Fact\nThere are three ETFs focused on gold mining companies, excluding inverse and leveraged ETFs and those with relatively low\nassets under management (AUM)\n.\n11\nPros and Cons of ETFs\nPros\nExposure to many stocks across various industries\nLow expense ratios and commissions\nRisk management through diversification\nCan focus on targeted industries or commodities\nCons\nActively managed ETFs have higher fees\nSingle-industry-focused ETFs limit diversification\nLack of liquidity hinders transactions\nHow to Invest in ETFs\nETFs trade through\nonline brokers\nand traditional\nbroker-dealers\n. Individuals can also purchase ETFs in their retirement accounts. An alternative to standard brokers is a\nrobo-advisor\nlike Betterment and\nWealthfront\n.\n12\n13\nAn ETF’s\nexpense ratio\nis the cost to operate and manage the fund. ETFs typically have low expenses because they track an index.\nETFs are available on most online investing platforms and retirement account provider sites, along with investing apps like Robinhood. Most of these platforms offer commission-free trading, meaning that investors don’t have to pay fees to the platform providers to buy or sell ETFs.\nAfter creating and funding a brokerage account, investors can search for ETFs and buy and sell as desired. One of the best ways to narrow ETF options is to utilize an ETF screening tool with criteria such as trading volume, expense ratio, past performance, holdings, and commission costs.\nPopular ETFs\nBelow are some\npopular ETFs\n. Some ETFs track an index of stocks, thus creating a broad portfolio, while others target specific industries.\nSPDR S&P 500 (SPY)\n: The oldest and most widely known ETF tracks the S&P 500.\n1\niShares Russell 2000 (\nIWM\n)\n: An ETF that tracks the Russell 2000 small-cap index.\n14\nInvesco QQQ\n(\nQQQ\n)\n: Known as \"cubes,\" it tracks the tech-heavy Nasdaq 100 Index.\n15\nSPDR Dow Jones Industrial Average (\nDIA\n)\n: Known as \"diamonds,\" it tracks the 30 stocks of the\nDow Jones Industrial Average (DJIA)\n.\n16\nSector ETFs\n: ETFs that track individual industries and sectors such as oil (\nOIH\n), energy (\nXLE\n), financial services (\nXLF\n), real estate\ninvestment trusts\n(\nIYR\n), and biotechnology (\nBBH\n).\nCommodity ETFs\n: These ETFs track commodities, including gold (\nGLD\n),\nsilver\n(\nSLV\n), crude oil (\nUSO\n), and natural gas (\nUNG\n).\nCountry ETFs\n: Funds that track the primary stock indexes in foreign countries but are traded in the U.S. in dollars. Examples include China (\nMCHI\n), Brazil (\nEWZ\n), Japan (\nEWJ\n), and Israel (\nEIS\n). Others track foreign markets across multiple countries, such as emerging market economies (\nEEM\n) and developed market economies (\nEFA\n).\nETFs vs. Mutual Funds vs. Stocks\nMost stocks, ETFs, and mutual funds can be bought and sold without a commission. Funds and ETFs differ from stocks because some of them charge management fees, though fees have been trending lower for years. ETFs tend to have lower fees than mutual funds.\nExchange-Traded Funds\nMutual Funds\nStocks\nWhat They Are\nTrack a basket of securities or commodities.\nPooled investments into bonds, securities, and other instruments.\nShares in listed companies.\nPrices\nCan trade at a premium or at a loss to the net asset value (NAV) of the fund.\nTrade at the net asset value of the overall fund.\nBased on their actual performance in the markets.\nHow They're Traded\nTraded during regular market hours, just like stocks.\nCan be bought and sold only at the end of a trading day.\nTraded during regular market hours.\nFees\nCan be purchased commission-free and are generally cheaper than mutual funds.\nSome do not charge load fees, but most are more expensive than ETFs because they charge management fees.\nCan be purchased commission-free on some platforms and generally do not have charges associated with them after purchase.\nOwnership of Securities\nETFs do not involve actual ownership of securities by retail investors.\nMutual funds own the securities in their basket.\nStocks involve ownership of the security.\nRisk\nDiversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and instruments.\nDiversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and security instruments.\nRisk is concentrated in a stock’s performance. Diversity can be achieved by buying other stocks.\nActive vs. Passive Equity Funds\nDividends and Taxes\nETF investors can also benefit from companies that pay\ndividends\n. Dividends are a portion of earnings allocated to investors. ETF shareholders are entitled to a share of earned interest or dividends and may get a residual value if the fund is\nliquidated\n.\nAn ETF is more tax-efficient than a mutual fund because most buying and selling occurs through an exchange, and the ETF sponsor doesn't need to redeem shares each time an investor wishes to sell shares of the ETF.\nEach time an investor sells their mutual fund shares, they sell them back to the fund and incur a tax liability that must be paid by the fund's shareholders.\n17\nCreation and Redemption\nThe supply of ETF shares is regulated through creation and redemption, which involves large specialized investors called \nauthorized participants (APs)\n. When an ETF manager wants to issue additional shares, the AP buys shares of the stocks from the index—such as the S&P 500 tracked by the fund—and sells or exchanges them to the ETF for new ETF shares at an equal value. In turn, the AP sells the ETF shares in the market for a profit.\nWhen an AP sells stocks to the ETF sponsor in return for shares in the ETF, the block of shares used in the transaction is called a \ncreation unit\n. If an ETF closes with a share price of $101 and the value of the stocks that the ETF owns is only worth $100 on a per-share basis, then the fund’s price of $101 was traded at a premium to the fund’s\nnet asset value (NAV)\n. The NAV is an accounting mechanism that determines the overall value of the assets or stocks in an ETF.\nAn AP also buys shares of the ETF on the open market. The AP then sells these shares back to the ETF sponsor in exchange for individual stock shares that the AP can sell on the open market. As a result, the number of ETF shares is reduced through the process called\nredemption\n. The amount of redemption and creation activity is a function of demand in the market and whether the ETF is trading at a discount or a premium to the value of the fund’s assets.\nETFs in the United Kingdom\nThe U.K. ETF market is one of the largest and most diverse in Europe. ETFs listed on the\nLondon Stock Exchange (LSE)\noffer exposure to various asset classes and markets, including equities, fixed income, commodities, currencies,\nreal estate\n, and alternative investments.\n18\nBuying\nETFs in the U.K.\nallows inclusion in Individual Savings Accounts (ISAs), which are tax-efficient savings vehicles that allow people to invest up to £20,000 per year without paying any income or capital gains tax on their returns.\n19\nAnother benefit is that ETFs attract no stamp duty, which is a tax levied on ordinary share transactions in the U.K.\n20\nInvestors can buy shares in U.S.-listed companies from the U.K., but regulations prohibit the purchase of U.S.-listed ETFs in the U.K.\n21\nSome U.K.-based ETFs track U.S. markets and have UCITS (Undertakings for the Collective Investment in Transferable Securities) in their names. This means the fund is fully regulated in the U.K. and allowed to track U.S. investments.\n22\nSeveral ETFs track the\nFTSE 100\nindex for broad exposure to U.K. equities. These consist of the 100 largest publicly listed companies in the country. The HSBC FTSE UCITS ETF is listed on the London Stock Exchange and trades under the ticker symbol HUKX.\n23\nThe ETF has an ongoing charge of 0.07% and a dividend yield of 3.16% as of November 2025.\n24\nFrequently Asked Questions (FAQs)\nWhat Was the First Exchange-Traded Fund?\nThe distinction of being the first exchange-traded fund is often given to the SPDR S&P 500 ETF (SPY), launched by State Street Global Advisors on Jan. 22, 1993.\n1\nThere were, however, some precursors to SPY, including Index Participation Units listed on the\nToronto Stock Exchange (TSX)\n, which tracked the Toronto 35 Index and appeared in 1990.\n25\nHow Is an ETF Different From an Index Fund?\nAn index fund usually refers to a mutual fund that tracks an index. An index ETF is constructed in much the same way and will hold the stocks of an index. However, the\ndifference between an index fund and an ETF\nis that an ETF tends to be more cost-effective and liquid than an index mutual fund. You can also buy an ETF throughout the trading day, while a mutual fund trades via a broker after the close of each trading day.\nDo ETFs Provide Diversification?\nNearly all ETFs provide\ndiversification\nrelative to individual stock purchases. Still, some ETFs are highly concentrated—either in the number of different securities they hold or in the weighting of those securities. For example, a fund may concentrate half of its assets in two or three positions, offering less diversification than other funds with broader asset distribution.\nThe Bottom Line\nExchange-traded funds represent a cost-effective way to gain exposure to a broad basket of securities with a limited budget. Investors can build a portfolio that holds one or many ETFs. Instead of buying individual stocks,\ninvestors buy shares of a fund\nthat targets a representative cross-section of the wider market. However, there can be additional expenses to keep in mind when investing in an ETF.","attrs_markdown":"\n\n[Skip to content](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#main)\n\n[Investopedia](https:\/\/www.investopedia.com\/)\n\n[Trade](https:\/\/www.investopedia.com\/simulator\/?inv_to_sim=global_nav)\n\n- Please fill out this field.\n- [Newsletters](https:\/\/www.investopedia.com\/terms\/e\/etf.asp)\n\nPlease fill out this field.\n\n- [News](https:\/\/www.investopedia.com\/news-4427706)\n  News\n  \n  - [Markets](https:\/\/www.investopedia.com\/markets-news-4427704)\n  - [Companies](https:\/\/www.investopedia.com\/company-news-4427705)\n  - [Earnings](https:\/\/www.investopedia.com\/earnings-reports-5218419)\n  - [CD Rates](https:\/\/www.investopedia.com\/certificates-deposit-news-7111770)\n  - [Mortgage Rates](https:\/\/www.investopedia.com\/mortgage-rates-5184598)\n  - [Economy](https:\/\/www.investopedia.com\/economic-news-5218422)\n  - [Government](https:\/\/www.investopedia.com\/political-news-4689737)\n  - 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[View All](https:\/\/www.investopedia.com\/personal-finance-4427760)\n- [Economy](https:\/\/www.investopedia.com\/economy-4689801)\n  - [Government and Policy](https:\/\/www.investopedia.com\/government-and-policy-4689793)\n  - [Monetary Policy](https:\/\/www.investopedia.com\/monetary-policy-4689792)\n  - [Fiscal Policy](https:\/\/www.investopedia.com\/fiscal-policy-4689796)\n  - [Economics](https:\/\/www.investopedia.com\/economics-4689800)\n  - [View All](https:\/\/www.investopedia.com\/economy-4689801)\n- [Reviews](https:\/\/www.investopedia.com\/financial-product-reviews-7110783)\n  - [Best Online Brokers](https:\/\/www.investopedia.com\/best-online-brokers-4587872)\n  - [Best Crypto Exchanges](https:\/\/www.investopedia.com\/best-crypto-exchanges-5071855)\n  - [Best Savings Rates](https:\/\/www.investopedia.com\/high-yield-savings-accounts-4770633)\n  - [Best CD Rates](https:\/\/www.investopedia.com\/best-cd-rates-4770214)\n  - [Best Life Insurance](https:\/\/www.investopedia.com\/the-best-life-insurance-companies-8763666)\n  - [Best Mortgage Rates](https:\/\/www.investopedia.com\/mortgage-rates-5094943)\n  - [Best Robo-Advisors](https:\/\/www.investopedia.com\/the-best-robo-advisors-8764849)\n  - [Best Personal Loans](https:\/\/www.investopedia.com\/the-best-personal-loans-8761582)\n  - [Best Debt Relief Companies](https:\/\/www.investopedia.com\/the-best-debt-relief-companies-8763179)\n  - [View All](https:\/\/www.investopedia.com\/financial-product-reviews-7110783)\n\n# Exchange-Traded Fund (ETF): What It Is and How to Invest\nTable of Contents\n\nExpand\n\nTable of Contents\n\n- [What Is an ETF?](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-what-is-an-exchange-traded-fund-etf)\n- [How ETFs Work](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-how-etfs-work)\n- [Types](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-types-of-etfs)\n- [Pros and Cons](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-pros-and-cons-of-etfs)\n- [How to Invest in ETFs](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-how-to-invest-in-etfs)\n- [Popular ETFs](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-popular-etfs)\n- [ETFs vs. Mutual Funds vs. Stocks](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-etfs-vs-mutual-funds-vs-stocks)\n- [Dividends and Taxes](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-dividends-and-taxes)\n- [Creation and Redemption](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-creation-and-redemption)\n- [ETFs in the United Kingdom](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-etfs-in-the-united-kingdom)\n- [FAQs](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-frequently-asked-questions-faqs)\n- [The Bottom Line](https:\/\/www.investopedia.com\/terms\/e\/etf.asp#toc-the-bottom-line)\n\nBy\n\n[James Chen](https:\/\/www.investopedia.com\/contributors\/101529\/)\n\n![]()\n\n![](https:\/\/www.investopedia.com\/thmb\/0_uRdNfKlZQBkY-Iz_0sgHi4ZQE=\/200x200\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/photo__james_chen-5bfc26144cedfd0026c00af8.jpeg)\n\n[Full Bio](https:\/\/www.investopedia.com\/contributors\/101529\/)\n\nJames Chen, CMT is an expert trader, investment adviser, and global market strategist.\n\nLearn about our  [editorial policies](https:\/\/www.investopedia.com\/legal-4768893#editorial-policy)\n\nUpdated December 05, 2025\n\nReviewed by\n\n[Gordon Scott](https:\/\/www.investopedia.com\/contributors\/82594\/)\n\n![]()\n\n![](https:\/\/www.investopedia.com\/thmb\/ONkGcALhxqKz7-OKReR1Lh4IcjE=\/200x200\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/gordonscottphoto-5bfc26c446e0fb00265b0ed4.jpg)\n\nReviewed by Gordon Scott\n\n[Full Bio](https:\/\/www.investopedia.com\/contributors\/82594\/)\n\nGordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).\n\nLearn about our  [Financial Review Board](https:\/\/www.investopedia.com\/investopedia-financial-review-board-5076269)\n\nFact checked by\n\n[Betsy Petrick](https:\/\/www.investopedia.com\/betsy-petrick-8415699)\n\n![Betsy Petrick]()\n\n![Betsy Petrick](https:\/\/www.investopedia.com\/thmb\/RpshZw_SF27XXcIiF5RtuLC338A=\/200x200\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/me-eb8cbda9691b4e53820b28cc0c7a990a.jpg)\n\nFact checked by Betsy Petrick\n\n[Full Bio](https:\/\/www.investopedia.com\/betsy-petrick-8415699)\n\nBetsy began her career in international finance and it has since grown into a comprehensive approach to journalism as she's been able to tap into that experience along with her time spent in academia and professional services.\n\nLearn about our  [editorial policies](https:\/\/www.investopedia.com\/legal-4768893#editorial-policy)\n\nPart of the Series\n\nExchange-Traded Fund Guide for Beginners\n\n[Exchange-Traded Fund (ETF): What It Is and How to Invest](https:\/\/www.investopedia.com\/terms\/e\/etf.asp)\n\nCURRENT ARTICLE\n\nETF Basics\n\n1. [7 Best ETF Trading Strategies for Beginners](https:\/\/www.investopedia.com\/articles\/investing\/090115\/7-best-etf-trading-strategies-beginners.asp)\n2. [Introduction to Exchange-Traded Funds (ETFs)](https:\/\/www.investopedia.com\/articles\/01\/082901.asp)\n3. [7 Easy-to-Understand ETFs to Replace A Savings Account](https:\/\/www.investopedia.com\/financial-edge\/0113\/7-easy-to-understand-etfs-to-replace-a-savings-account.aspx)\n4. [Brief History of ETFs](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/12\/brief-history-exchange-traded-funds.asp)\n5. [ETFs Open Secret as a Tax Loophole](https:\/\/www.investopedia.com\/news\/etf-open-secret-theyre-tax-loophole\/)\n6. [ETF Market Price vs. ETF Net Asset Value: What's the Difference?](https:\/\/www.investopedia.com\/ask\/answers\/052815\/what-difference-between-etfs-net-asset-value-nav-and-its-market-price.asp)\n7. [Going Green With Exchange-Traded Funds (ETFs)](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/11\/going-green-with-etfs.asp)\n8. [How Are ETF Fees Deducted?](https:\/\/www.investopedia.com\/ask\/answers\/071816\/how-are-etf-fees-deducted.asp)\n9. [How are ETFs Taxed?](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/08\/etf-taxes-introduction.asp)\n\nPros and Cons\n\n1. [ETFs Can Be Safe Investments If Used Correctly](https:\/\/www.investopedia.com\/articles\/investing\/020916\/etfs-can-be-safe-investments-if-used-correctly.asp)\n2. [Advantages and Disadvantages of ETFs](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/11\/advantages-disadvantages-etfs.asp)\n3. [Advantages of Exchange-Traded Funds (ETFs)](https:\/\/www.investopedia.com\/ask\/answers\/09\/etfs-vs-mutual-funds.asp)\n4. [Why ETF Investing Is Ideal for Young Investors](https:\/\/www.investopedia.com\/articles\/younginvestors\/09\/etfs-ideal.asp)\n5. [What Are the Biggest Risks When Investing in ETFs?](https:\/\/www.investopedia.com\/articles\/etfs-mutual-funds\/061416\/biggest-etf-risks.asp)\n\nInvesting in ETFs\n\n1. [How To Pick the Best ETF](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/08\/etf-choose-best.asp)\n2. [New Ways to Buy ETFs Online](https:\/\/www.investopedia.com\/articles\/etfs\/071716\/buying-etfs-online-easy-heres-how.asp)\n3. [Dollar-Cost Averaging With ETFs](https:\/\/www.investopedia.com\/articles\/mutualfund\/05\/etfdollarcost.asp)\n4. [Are ETFs a Good Fit for 401(k) Plans?](https:\/\/www.investopedia.com\/articles\/financial-advisors\/101315\/are-etfs-good-fit-401k-plans.asp)\n5. [Exchange Traded Notes: An Alternative to ETFs](https:\/\/www.investopedia.com\/investing\/etfs-vs-etns\/)\n6. [Exchange Traded Product (ETP): Definition, Types, and Example](https:\/\/www.investopedia.com\/terms\/e\/exchange-traded-products-etp.asp)\n7. [Index Fund vs. ETF: What's the Difference?](https:\/\/www.investopedia.com\/ask\/answers\/033015\/whats-difference-between-index-fund-and-etf.asp)\n\nETFs and Mutual Funds\n\n1. [Mutual Fund vs. ETF: What's the Difference?](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/08\/etf-mutual-fund-difference.asp)\n2. [ETFs vs. Mutual Funds: Which Is Better for Young Investors?](https:\/\/www.investopedia.com\/articles\/investing\/021916\/etfs-vs-mutual-funds-which-better-young-investors.asp)\n3. [Why Are ETF Fees Lower Than Mutual Fund Fees?](https:\/\/www.investopedia.com\/articles\/investing\/102915\/why-are-etf-fees-lower-mutual-funds.asp)\n\nDefinition\n\nAn exchange-traded fund (ETF) pools a group of securities into a fund and can be traded like an individual stock on an exchange.\n\n### Key Takeaways\n- An [exchange-traded fund](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) is a basket of securities that trades on an exchange, just like a stock.\n- ETF share prices fluctuate throughout the trading day, unlike mutual funds, which only trade once a day after the market closes.\n- ETFs offer low expense ratios and fewer brokerage commissions than buying stocks individually.\n\nGet personalized, AI-powered answers built on 27+ years of trusted expertise.\n\nASK\n## What Is an Exchange-Traded Fund (ETF)?\nAn exchange-traded fund (ETF) is an investment fund that holds multiple underlying assets. It can be bought and sold on an exchange, much like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of stocks—even specific investment strategies.\n\n[Various ETFs are available to investors](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) for income generation, speculation, or hedging risk in a portfolio. The first ETF in the U.S. was the SPDR S\\&P 500 ETF ([SPY](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=spy)), which tracks the S\\&P 500 Index.1\n\n![Illustration of two piggy banks with arrows between them accompanied by text explaining ETFs: An echange-traded fund (EFT is a type of pooled investment security that holds multiple underlying assets, rather than only one.](https:\/\/www.investopedia.com\/thmb\/_uAQGkkLGdgz3ktVgvGcwDOi0VA=\/1500x0\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/EFT_final-45a9ca8cf7e948608a3b8dae38b66393.png)\n\n![Illustration of two piggy banks with arrows between them accompanied by text explaining ETFs: An echange-traded fund (EFT is a type of pooled investment security that holds multiple underlying assets, rather than only one.](https:\/\/www.investopedia.com\/thmb\/_uAQGkkLGdgz3ktVgvGcwDOi0VA=\/1500x0\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/EFT_final-45a9ca8cf7e948608a3b8dae38b66393.png)\n\nExchange-traded funds are a simple, affordable, and easy way to invest, helping you diversify your portfolio in a low-cost way.\n\nInvestopedia \/ Zoe Hansen\n## How ETFs Work\nIn the U.S., ETFs must be registered with the Securities and Exchange Commission (SEC).2 Most ETFs are set up as [open-ended funds](https:\/\/www.investopedia.com\/terms\/o\/open-endfund.asp) and are subject to the [Investment Company Act of 1940](https:\/\/www.investopedia.com\/terms\/i\/investmentcompanyact.asp), except where the rules modify their regulatory requirements.3 Open-ended funds do not limit the number of investors involved in the product.\n\nVanguard's Consumer Staples ETF ([VDC](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=VDC)) tracks the MSCI US Investable Market Consumer Staples 25\/50 Index and has a minimum investment of \\$1.00.4 The fund holds shares of all 105 companies on the index, some more familiar than others because they produce or sell consumer items. A few of the companies held by VDC are Procter & Gamble, Costco, Coca-Cola, Walmart, and PepsiCo.5\n\nReady to Take the Next Step?\n\nAdvertiser Disclosure\n\n×\n\nThe offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.\n\nThere is no transfer of ownership because investors buy a share of the fund, which owns the shares of the underlying companies. Unlike mutual funds, ETF share prices are determined throughout the day. A mutual fund trades only once a day after the markets close.\n\n### Important\nVolatility is limited with an ETF because its holdings are diversified across various assets. Industry ETFs are also used to rotate in and out of sectors during [economic cycles](https:\/\/www.investopedia.com\/terms\/e\/economic-cycle.asp).\n## Types of ETFs\n[Online brokers](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) may allow you to invest in a wide variety of ETFs, including the following.\n\n- **Passive ETFs**: [Passive ETFs](https:\/\/www.investopedia.com\/terms\/p\/passive-etf.asp) aim to replicate the performance of a broader index—either a diversified index such as the S\\&P 500 or a more targeted sector or trend.\n- **Actively managed ETFs**: These ETFs don't target an index. Instead, portfolio managers make decisions about which securities to buy and sell. [Actively managed ETFs](https:\/\/www.investopedia.com\/terms\/a\/activemanagement.asp) offer benefits over passive ETFs, but they charge higher fees.\n- **Bond ETFs**: Used to provide regular income to investors. Distribution depends on the performance of underlying bonds, which may include government, corporate, and state and local bonds, usually called [municipal bonds](https:\/\/www.investopedia.com\/terms\/m\/municipalbond.asp). Unlike their underlying instruments, [bondETFs](https:\/\/www.investopedia.com\/terms\/b\/bond-etf.asp) do not have a maturity date.6\n- **Industry or [sector ETFs](https:\/\/www.investopedia.com\/terms\/s\/sector-etf.asp)**: A basket of stocks that track a single industry or sector, like automotive or energy. The aim is to provide diversified exposure to a single industry, one that includes high performers and new entrants with growth potential. BlackRock's iShares U.S. Technology ETF ([IYW](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=IYW)), for example, tracks the Russell 1000 Technology RIC 22.5\/45 Capped Index.7\n- **Commodity ETFs**: Invest in [commodities](https:\/\/www.investopedia.com\/terms\/c\/commodity.asp) like crude oil or gold. [Commodity ETFs](https:\/\/www.investopedia.com\/terms\/c\/commodity-etf.asp) can diversify a portfolio. Holding shares in a commodity ETF is less expensive than owning the physical commodity.\n- [**Currency ETFs**](https:\/\/www.investopedia.com\/terms\/c\/currency-etf.asp): Track the performance of currency pairs and can be used to speculate on the exchange rates of currencies based on political and economic developments in a country. Some use them to diversify a portfolio, while importers and exporters use them to hedge against [volatility](https:\/\/www.investopedia.com\/terms\/v\/volatility.asp) in currency markets.\n- **Bitcoin ETFs**: The [spot Bitcoin ETF](https:\/\/www.investopedia.com\/spot-bitcoin-etfs-8358373) was approved by the [SEC in 2024](https:\/\/www.investopedia.com\/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670).8 These ETFs expose investors to Bitcoin's price moves in their regular brokerage accounts by purchasing and holding Bitcoin as the underlying asset. [Bitcoin futures ETFs](https:\/\/www.investopedia.com\/investing\/bitcoin-etfs-explained\/), approved in 2021, use futures contracts traded on the Chicago Mercantile Exchange and track the price movements of bitcoin futures contracts.9\n- **Ethereum ETFs**: [Spot Ether ETFs](https:\/\/www.investopedia.com\/understanding-spot-ethereum-etfs-8622726) provide a way to invest in [Ether](https:\/\/www.investopedia.com\/terms\/e\/ether-cryptocurrency.asp), the native currency of the Ethereum blockchain, without directly owning the cryptocurrency. In May 2024, the SEC allowed Nasdaq, the Chicago Board Options Exchange, and the NYSE to list ETFs holding Ether.10 In [July 2024](https:\/\/www.investopedia.com\/spot-ether-etfs-start-trading-today-here-s-what-you-need-to-know-8680846), the SEC officially approved nine spot Ether ETFs to begin trading on U.S. exchanges.\n- **Inverse ETFs**: Earn gains from stock declines without having to [short stocks](https:\/\/www.investopedia.com\/terms\/s\/shortselling.asp). An inverse ETF uses [derivatives](https:\/\/www.investopedia.com\/terms\/d\/derivative.asp) to short a stock. Inverse ETFs are [exchange-traded notes (ETNs)](https:\/\/www.investopedia.com\/terms\/e\/etn.asp) and not true ETFs. An ETN is a bond that trades like a stock and is backed by an issuer such as a bank.\n- **Leveraged ETFs**: A [leveraged ETF](https:\/\/www.investopedia.com\/terms\/l\/leveraged-etf.asp) seeks to return some multiples (e.g., 2× or 3×) on the return of the underlying investments. If the S\\&P 500 rises 1%, a 2× leveraged S\\&P 500 ETF will return 2% (and if the index falls by 1%, the ETF would lose 2%). These products use debt and derivatives, such as options or futures contracts, to leverage their returns.\n\n### Fast Fact\nThere are three ETFs focused on gold mining companies, excluding inverse and leveraged ETFs and those with relatively low [assets under management (AUM)](https:\/\/www.investopedia.com\/terms\/a\/aum.asp).11\n## Pros and Cons of ETFs\nPros\n\n- Exposure to many stocks across various industries\n- Low expense ratios and commissions\n- Risk management through diversification\n- Can focus on targeted industries or commodities\n\nCons\n\n- Actively managed ETFs have higher fees\n- Single-industry-focused ETFs limit diversification\n- Lack of liquidity hinders transactions\n## How to Invest in ETFs\nETFs trade through [online brokers](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) and traditional [broker-dealers](https:\/\/www.investopedia.com\/terms\/b\/broker-dealer.asp). Individuals can also purchase ETFs in their retirement accounts. An alternative to standard brokers is a [robo-advisor](https:\/\/www.investopedia.com\/the-best-robo-advisors-8764849) like Betterment and [Wealthfront](https:\/\/www.investopedia.com\/wealthfront-review-4587933).1213\n\nAn ETF’s [expense ratio](https:\/\/www.investopedia.com\/terms\/e\/expenseratio.asp) is the cost to operate and manage the fund. ETFs typically have low expenses because they track an index.\n\nETFs are available on most online investing platforms and retirement account provider sites, along with investing apps like Robinhood. Most of these platforms offer commission-free trading, meaning that investors don’t have to pay fees to the platform providers to buy or sell ETFs.\n\nAfter creating and funding a brokerage account, investors can search for ETFs and buy and sell as desired. One of the best ways to narrow ETF options is to utilize an ETF screening tool with criteria such as trading volume, expense ratio, past performance, holdings, and commission costs.\n\n### Tip\nOrder a copy of *Investopedia's* [What To Do With \\$10,000](https:\/\/www.amazon.com\/dp\/1547862912\/ref=sr_1_7?keywords=investopedia&qid=1684168403&sr=8-7) for more wealth-building advice.\n## Popular ETFs\nBelow are some [popular ETFs](https:\/\/www.investopedia.com\/the-best-etfs-8781418). Some ETFs track an index of stocks, thus creating a broad portfolio, while others target specific industries.\n\n- **SPDR S\\&P 500 (SPY)**: The oldest and most widely known ETF tracks the S\\&P 500.1\n- **iShares Russell 2000 ([IWM](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=IWM))**: An ETF that tracks the Russell 2000 small-cap index.14\n- **[Invesco QQQ](https:\/\/www.investopedia.com\/ask\/answers\/061715\/what-qqq-etf.asp) ([QQQ](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=QQQ))**: Known as \"cubes,\" it tracks the tech-heavy Nasdaq 100 Index.15\n- **SPDR Dow Jones Industrial Average ([DIA](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=DIA))**: Known as \"diamonds,\" it tracks the 30 stocks of the [Dow Jones Industrial Average (DJIA)](https:\/\/www.investopedia.com\/terms\/d\/djia.asp).16\n- **Sector ETFs**: ETFs that track individual industries and sectors such as oil ([OIH](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=OIH)), energy ([XLE](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=XLE)), financial services ([XLF](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=XLF)), real estate [investment trusts](https:\/\/www.investopedia.com\/etf-vs-investment-trust-8386101) ([IYR](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=IYR)), and biotechnology ([BBH](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=BBH)).\n- **Commodity ETFs**: These ETFs track commodities, including gold ([GLD](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=GLD)), [silver](https:\/\/www.investopedia.com\/articles\/investing\/122215\/slv-ishares-silver-trust-etf.asp) ([SLV](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=SLV)), crude oil ([USO](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=USO)), and natural gas ([UNG](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=UNG)).\n- **Country ETFs**: Funds that track the primary stock indexes in foreign countries but are traded in the U.S. in dollars. Examples include China ([MCHI](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=MCHI)), Brazil ([EWZ](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EWZ)), Japan ([EWJ](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EWJ)), and Israel ([EIS](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EIS)). Others track foreign markets across multiple countries, such as emerging market economies ([EEM](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EEM)) and developed market economies ([EFA](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EFA)).\n## ETFs vs. Mutual Funds vs. Stocks\nMost stocks, ETFs, and mutual funds can be bought and sold without a commission. Funds and ETFs differ from stocks because some of them charge management fees, though fees have been trending lower for years. ETFs tend to have lower fees than mutual funds.\n\n|   |   |   |   |\n|---|---|---|---|\n|   | **Exchange-Traded Funds** | **Mutual Funds** | **Stocks** |\n| **What They Are** | Track a basket of securities or commodities. | Pooled investments into bonds, securities, and other instruments. | Shares in listed companies. |\n| **Prices** | Can trade at a premium or at a loss to the net asset value (NAV) of the fund. | Trade at the net asset value of the overall fund. | Based on their actual performance in the markets. |\n| **How They're Traded** | Traded during regular market hours, just like stocks. | Can be bought and sold only at the end of a trading day. | Traded during regular market hours. |\n| **Fees** | Can be purchased commission-free and are generally cheaper than mutual funds. | Some do not charge load fees, but most are more expensive than ETFs because they charge management fees. | Can be purchased commission-free on some platforms and generally do not have charges associated with them after purchase. |\n| **Ownership of Securities** | ETFs do not involve actual ownership of securities by retail investors. | Mutual funds own the securities in their basket. | Stocks involve ownership of the security. |\n| **Risk** | Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and instruments. | Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and security instruments. | Risk is concentrated in a stock’s performance. Diversity can be achieved by buying other stocks. |\n\nActive vs. Passive Equity Funds\n\n## Dividends and Taxes\nETF investors can also benefit from companies that pay [dividends](https:\/\/www.investopedia.com\/terms\/d\/dividend.asp). Dividends are a portion of earnings allocated to investors. ETF shareholders are entitled to a share of earned interest or dividends and may get a residual value if the fund is [liquidated](https:\/\/www.investopedia.com\/terms\/l\/liquidation.asp).\n\nAn ETF is more tax-efficient than a mutual fund because most buying and selling occurs through an exchange, and the ETF sponsor doesn't need to redeem shares each time an investor wishes to sell shares of the ETF.\n\nEach time an investor sells their mutual fund shares, they sell them back to the fund and incur a tax liability that must be paid by the fund's shareholders.17\n\n## Creation and Redemption\nThe supply of ETF shares is regulated through creation and redemption, which involves large specialized investors called [authorized participants (APs)](https:\/\/www.investopedia.com\/terms\/a\/authorizedparticipant.asp). When an ETF manager wants to issue additional shares, the AP buys shares of the stocks from the index—such as the S\\&P 500 tracked by the fund—and sells or exchanges them to the ETF for new ETF shares at an equal value. In turn, the AP sells the ETF shares in the market for a profit.\n\nWhen an AP sells stocks to the ETF sponsor in return for shares in the ETF, the block of shares used in the transaction is called a [creation unit](https:\/\/www.investopedia.com\/terms\/c\/creationunit.asp). If an ETF closes with a share price of \\$101 and the value of the stocks that the ETF owns is only worth \\$100 on a per-share basis, then the fund’s price of \\$101 was traded at a premium to the fund’s [net asset value (NAV)](https:\/\/www.investopedia.com\/terms\/n\/nav.asp). The NAV is an accounting mechanism that determines the overall value of the assets or stocks in an ETF.\n\nAn AP also buys shares of the ETF on the open market. The AP then sells these shares back to the ETF sponsor in exchange for individual stock shares that the AP can sell on the open market. As a result, the number of ETF shares is reduced through the process called [redemption](https:\/\/www.investopedia.com\/terms\/r\/redemption-mechanism.asp). The amount of redemption and creation activity is a function of demand in the market and whether the ETF is trading at a discount or a premium to the value of the fund’s assets.\n\n## ETFs in the United Kingdom\nThe U.K. ETF market is one of the largest and most diverse in Europe. ETFs listed on the [London Stock Exchange (LSE)](https:\/\/www.investopedia.com\/terms\/l\/lse.asp) offer exposure to various asset classes and markets, including equities, fixed income, commodities, currencies, [real estate](https:\/\/www.investopedia.com\/the-best-real-estate-crowdfunding-sites-8761523), and alternative investments.18\n\nBuying [ETFs in the U.K.](https:\/\/www.investopedia.com\/uk-etfs-how-they-work-8549739) allows inclusion in Individual Savings Accounts (ISAs), which are tax-efficient savings vehicles that allow people to invest up to £20,000 per year without paying any income or capital gains tax on their returns.19 Another benefit is that ETFs attract no stamp duty, which is a tax levied on ordinary share transactions in the U.K.20\n\nInvestors can buy shares in U.S.-listed companies from the U.K., but regulations prohibit the purchase of U.S.-listed ETFs in the U.K.21 Some U.K.-based ETFs track U.S. markets and have UCITS (Undertakings for the Collective Investment in Transferable Securities) in their names. This means the fund is fully regulated in the U.K. and allowed to track U.S. investments.22\n\nSeveral ETFs track the [FTSE 100](https:\/\/www.investopedia.com\/terms\/f\/ftse.asp) index for broad exposure to U.K. equities. These consist of the 100 largest publicly listed companies in the country. The HSBC FTSE UCITS ETF is listed on the London Stock Exchange and trades under the ticker symbol HUKX.23 The ETF has an ongoing charge of 0.07% and a dividend yield of 3.16% as of November 2025.24\n\n## Frequently Asked Questions (FAQs)\n## What Was the First Exchange-Traded Fund?\nThe distinction of being the first exchange-traded fund is often given to the SPDR S\\&P 500 ETF (SPY), launched by State Street Global Advisors on Jan. 22, 1993.1 There were, however, some precursors to SPY, including Index Participation Units listed on the [Toronto Stock Exchange (TSX)](https:\/\/www.investopedia.com\/terms\/t\/toronto-stock-exchange-tsx.asp), which tracked the Toronto 35 Index and appeared in 1990.25\n\n## How Is an ETF Different From an Index Fund?\nAn index fund usually refers to a mutual fund that tracks an index. An index ETF is constructed in much the same way and will hold the stocks of an index. However, the [difference between an index fund and an ETF](https:\/\/www.investopedia.com\/ask\/answers\/033015\/whats-difference-between-index-fund-and-etf.asp) is that an ETF tends to be more cost-effective and liquid than an index mutual fund. You can also buy an ETF throughout the trading day, while a mutual fund trades via a broker after the close of each trading day.\n\n## Do ETFs Provide Diversification?\nNearly all ETFs provide [diversification](https:\/\/www.investopedia.com\/articles\/investing\/030116\/portfolio-diversification-done-right.asp) relative to individual stock purchases. Still, some ETFs are highly concentrated—either in the number of different securities they hold or in the weighting of those securities. For example, a fund may concentrate half of its assets in two or three positions, offering less diversification than other funds with broader asset distribution.\n## The Bottom Line\nExchange-traded funds represent a cost-effective way to gain exposure to a broad basket of securities with a limited budget. Investors can build a portfolio that holds one or many ETFs. Instead of buying individual stocks, [investors buy shares of a fund](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) that targets a representative cross-section of the wider market. However, there can be additional expenses to keep in mind when investing in an ETF.\n\nGet personalized, AI-powered answers built on 27+ years of trusted expertise.\n\nASK\n\nArticle Sources\n\nInvestopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https:\/\/www.investopedia.com\/legal-4768893#EditorialPolicy)\n\n1. State Street Global Advisors SPDR. “[SPY: The Original S\\&P 500 ETF](https:\/\/www.ssga.com\/us\/en\/intermediary\/etfs\/capabilities\/spdr-core-equity-etfs\/spy-sp-500).”\n2. U.S. Securities and Exchange Commission. “[Investor Bulletin: Exchange-Traded Funds](https:\/\/www.sec.gov\/investor\/alerts\/etfs.pdf).”\n3. U.S. Government. “[Investment Company Act of 1940](https:\/\/www.govinfo.gov\/content\/pkg\/COMPS-1879\/pdf\/COMPS-1879.pdf).”\n4. Vanguard. \"[Vanguard Consumer Staples ETF (VDC)](https:\/\/investor.vanguard.com\/investment-products\/etfs\/profile\/vdc#portfolio-composition).\"\n5. MSCI. \"[MSCI US IMI Consumer Staples 25\/50 Index (USD)](https:\/\/www.msci.com\/documents\/10199\/eba103d2-41f1-4efc-a346-c9aa1c316a88).\"\n6. Fidelity. “[Bond ETFs in Focus](https:\/\/www.fidelity.com\/viewpoints\/active-investor\/bond-etfs).”\n7. Blackrock. \"[iShares U.S. Technology ETF](https:\/\/www.blackrock.com\/us\/individual\/products\/239522\/ishares-us-technology-etf).\"\n8. U.S. Securities and Exchange Commission. “[Statement on the Approval of Spot Bitcoin Exchange-Traded Products](https:\/\/www.sec.gov\/newsroom\/speeches-statements\/gensler-statement-spot-bitcoin-011023).”\n9. Commodities Futures Trading Commission. \"[What Is a Bitocin Futures ETF?](https:\/\/www.cftc.gov\/LearnAndProtect\/AdvisoriesAndArticles\/BitcoinFuturesETF.html)\"\n10. U.S. Securities and Exchange Commission. “[Release No. 34-100224](https:\/\/www.sec.gov\/files\/rules\/sro\/nysearca\/2024\/34-100224.pdf),” Page 1.\n11. ETF Database. \"[ETF Screener](https:\/\/etfdb.com\/screener\/#page=1&tab=returns&sort_by=fifty_two_week&sort_direction=desc&asset_class=equity&sectors=Gold%20Miners&inverse=false&assets_start=50).\"\n12. Wealthfront. “[Home Page](https:\/\/www.wealthfront.com\/?utm_source=google&utm_medium=brand-search&utm_campaign=brand_exact-wf_ps-b_aw_all_dr_brand_20210825&cparam_campaignid=2061931427&utm_term=wealthfront&utm_content=null&cparam_contentid=781541991745&cparam_adgroup=null&cparam_adgroupid=76855954235&cparam_device=a&cparam_matchtype=e&campaignid=2061931427&adgroupid=76855954235&adid=781541991745&gad_source=1&gad_campaignid=2061931427&gbraid=0AAAAADl0KgwZ0mERg_OAViQZVryImJ588&gclid=CjwKCAiAraXJBhBJEiwAjz7MZei0qCI_xVIt99VPCHsu2rV3MYL3CCE3RhVU397aDK5BLI5lKspJNxoCxIoQAvD_BwE).”\n13. Betterment. “[Home Page](https:\/\/www.betterment.com\/investing?&&&&gclsrc=aw.ds&gad_source=1&gad_campaignid=189797745&gbraid=0AAAAADn17yefk9BVdUf_pd_2aGU1h6Mki&gclid=CjwKCAiAraXJBhBJEiwAjz7MZRS2Ye_rnoJYBJGLXcvWZGCPGgm7hCkWF1Xzr3PPxVdHpaSf_wmb_RoCmJQQAvD_BwE).”\n14. Blackrock. \"[iShares U.S. Technology ETF](https:\/\/www.blackrock.com\/us\/individual\/products\/239522\/ishares-us-technology-etf).\"\n15. Invesco. “[About QQQ](https:\/\/www.invesco.com\/qqq-etf\/en\/about.html?utm_campaign=INV_QQQ_2025_Google_Search_US_CoreQQQ_Brand_x_Prospecting_1869113&utm_source=Google&utm_medium=cpc&utm_content=qqq-cpc-paid-text&utm_term=21747614533_167110092719&gclsrc=aw.ds&gad_source=1&gad_campaignid=21747614533&gbraid=0AAAAABqAFo99ulic-U2Jnc9ugBVadrjb-&gclid=CjwKCAiAraXJBhBJEiwAjz7MZYSCFUaMa3dlpENUqOoxdZkpaOfvYmBAV7Dk0K3lRTRqNKa9v58c6hoCA1EQAvD_BwE).”\n16. State Street. ”[DIA](https:\/\/www.ssga.com\/us\/en\/individual\/capabilities\/spdr-core-equity-etfs\/dia-djia?WT.mc_id=ps_etf-dia_dia-funds_us_google_text_psb_mf2_lp_may25&gclsrc=aw.ds&gad_source=1&gad_campaignid=10941827254&gbraid=0AAAAACz5AuMHaAPXtTpzF6F-LVLjRXsQp&gclid=CjwKCAiAraXJBhBJEiwAjz7MZU-MYNtYcxaH_7xXwL1scgtJ4ngHfy47bzW6miUjCZ_SV8Z-5W64YhoC6uoQAvD_BwE).”\n17. Internal Revenue Service. “[Topic No. 409, Capital Gains and Losses](https:\/\/www.irs.gov\/taxtopics\/tc409).”\n18. London Stock Exchange. \"[Exchange Traded Funds](https:\/\/www.londonstockexchange.com\/raise-finance\/etps\/etfs).\"\n19. UK Government. \"[ISAs](https:\/\/www.gov.uk\/individual-savings-accounts).\"\n20. UK Government. \"[Tax When You Buy Shares](https:\/\/www.gov.uk\/tax-buy-shares).\"\n21. European Parliament. “[Restricted Access to US ETFs for Ordinary EU Retail Investors](https:\/\/www.europarl.europa.eu\/doceo\/document\/E-9-2021-004745_EN.html).”\n22. UCITS ETFs. “[UCITS ETFs by Issuer](https:\/\/www.ucits-etfs.com\/).”\n23. HSBC. “[HSBC FTSE 100 UCITS ETF](https:\/\/www.assetmanagement.hsbc.co.uk\/en\/institutional-investor\/funds\/ie00b42tw061).”\n24. Yahoo! Finance. “[HSBC FTSE 100 UCITS ETF (HUKX.L)](https:\/\/finance.yahoo.com\/quote\/HUKX.L\/profile\/).”\n25. S\\&P Dow Jones Indices. “[Reflecting on 25 Years of the S\\&P\/TSX Index Series and Its Impact on the Canadian Investment Industry](https:\/\/www.spglobal.com\/spdji\/en\/documents\/education\/education-reflecting-on-25-years-of-the-sp-tsx-index-series.pdf),” Page 1.\n\nReady to Take the Next Step?\n\nAdvertiser Disclosure\n\n×\n\nThe offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.\n\nPart of the Series\n\nExchange-Traded Fund Guide for Beginners\n\n[Exchange-Traded Fund (ETF): What It Is and How to Invest](https:\/\/www.investopedia.com\/terms\/e\/etf.asp)\n\nCURRENT ARTICLE\n\nETF Basics\n\n1. [7 Best ETF Trading Strategies for Beginners](https:\/\/www.investopedia.com\/articles\/investing\/090115\/7-best-etf-trading-strategies-beginners.asp)\n2. [Introduction to Exchange-Traded Funds (ETFs)](https:\/\/www.investopedia.com\/articles\/01\/082901.asp)\n3. [7 Easy-to-Understand ETFs to Replace A Savings Account](https:\/\/www.investopedia.com\/financial-edge\/0113\/7-easy-to-understand-etfs-to-replace-a-savings-account.aspx)\n4. [Brief History of ETFs](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/12\/brief-history-exchange-traded-funds.asp)\n5. [ETFs Open Secret as a Tax Loophole](https:\/\/www.investopedia.com\/news\/etf-open-secret-theyre-tax-loophole\/)\n6. [ETF Market Price vs. ETF Net Asset Value: What's the Difference?](https:\/\/www.investopedia.com\/ask\/answers\/052815\/what-difference-between-etfs-net-asset-value-nav-and-its-market-price.asp)\n7. [Going Green With Exchange-Traded Funds (ETFs)](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/11\/going-green-with-etfs.asp)\n8. [How Are ETF Fees Deducted?](https:\/\/www.investopedia.com\/ask\/answers\/071816\/how-are-etf-fees-deducted.asp)\n9. [How are ETFs Taxed?](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/08\/etf-taxes-introduction.asp)\n\nPros and Cons\n\n1. [ETFs Can Be Safe Investments If Used Correctly](https:\/\/www.investopedia.com\/articles\/investing\/020916\/etfs-can-be-safe-investments-if-used-correctly.asp)\n2. [Advantages and Disadvantages of ETFs](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/11\/advantages-disadvantages-etfs.asp)\n3. [Advantages of Exchange-Traded Funds (ETFs)](https:\/\/www.investopedia.com\/ask\/answers\/09\/etfs-vs-mutual-funds.asp)\n4. [Why ETF Investing Is Ideal for Young Investors](https:\/\/www.investopedia.com\/articles\/younginvestors\/09\/etfs-ideal.asp)\n5. [What Are the Biggest Risks When Investing in ETFs?](https:\/\/www.investopedia.com\/articles\/etfs-mutual-funds\/061416\/biggest-etf-risks.asp)\n\nInvesting in ETFs\n\n1. [How To Pick the Best ETF](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/08\/etf-choose-best.asp)\n2. [New Ways to Buy ETFs Online](https:\/\/www.investopedia.com\/articles\/etfs\/071716\/buying-etfs-online-easy-heres-how.asp)\n3. [Dollar-Cost Averaging With ETFs](https:\/\/www.investopedia.com\/articles\/mutualfund\/05\/etfdollarcost.asp)\n4. [Are ETFs a Good Fit for 401(k) Plans?](https:\/\/www.investopedia.com\/articles\/financial-advisors\/101315\/are-etfs-good-fit-401k-plans.asp)\n5. [Exchange Traded Notes: An Alternative to ETFs](https:\/\/www.investopedia.com\/investing\/etfs-vs-etns\/)\n6. [Exchange Traded Product (ETP): Definition, Types, and Example](https:\/\/www.investopedia.com\/terms\/e\/exchange-traded-products-etp.asp)\n7. [Index Fund vs. ETF: What's the Difference?](https:\/\/www.investopedia.com\/ask\/answers\/033015\/whats-difference-between-index-fund-and-etf.asp)\n\nETFs and Mutual Funds\n\n1. [Mutual Fund vs. ETF: What's the Difference?](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/08\/etf-mutual-fund-difference.asp)\n2. [ETFs vs. Mutual Funds: Which Is Better for Young Investors?](https:\/\/www.investopedia.com\/articles\/investing\/021916\/etfs-vs-mutual-funds-which-better-young-investors.asp)\n3. [Why Are ETF Fees Lower Than Mutual Fund Fees?](https:\/\/www.investopedia.com\/articles\/investing\/102915\/why-are-etf-fees-lower-mutual-funds.asp)\n\nRead more\n\n- [Investing](https:\/\/www.investopedia.com\/investing-4427685)\n- [ETFs](https:\/\/www.investopedia.com\/etfs-4427784)\n\n## Related Articles\n[![Close up of a hand holding a pen filling out tax forms with a laptop in the background](https:\/\/www.investopedia.com\/thmb\/OVNNBI2dBZvpESP4TGBvxssdaWw=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-1215490521-fa55909902a244acb93471faae492dcc.jpg) ![Close up of a hand holding a pen filling out tax forms with a laptop in the background](https:\/\/www.investopedia.com\/thmb\/OVNNBI2dBZvpESP4TGBvxssdaWw=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-1215490521-fa55909902a244acb93471faae492dcc.jpg) 8 ETFs That May Outperform Savings Accounts](https:\/\/www.investopedia.com\/financial-edge\/0113\/7-easy-to-understand-etfs-to-replace-a-savings-account.aspx)\n\n[![Selecting high dividend paying stocks is an art and science. 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A comparison of the prospects of the Market Vectors Gold Miners and Market Vectors Junior Gold Miners ETFs. ](https:\/\/www.investopedia.com\/thmb\/zYNTjO_OxVARRYFfQg0nxFGLJ4M=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/thinkstockphotos-461251551-5bfc34fe46e0fb00517daf60.jpg) 5 Essential Factors to Consider Before Investing in Gold ETFs](https:\/\/www.investopedia.com\/considering-gold-etfs-after-recent-record-highs-here-are-5-key-factors-to-weigh-before-investing-11862975)\n\n[![Two professionals walking and conversing while holding coffee cups American flags and a building facade in the background]() ![Two professionals walking and conversing while holding coffee cups American flags and a building facade in the background](https:\/\/www.investopedia.com\/thmb\/hdgTMeh02s19ZMPHUS2JxkwLTO4=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-1767347751-9892d18a263245daa6cbe258b6c652d6.jpg) Avoid ETF Money Traps: Identifying Profitable and Reliable Funds](https:\/\/www.investopedia.com\/are-etfs-money-traps-11760686)\n\n[![Business Chart Showing Financial Success at the Stock Market]() ![Business Chart Showing Financial Success at the Stock Market](https:\/\/www.investopedia.com\/thmb\/0c-5WOyI6jbIZ4XiiWr2S2GEf5o=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/bonds-lrg-3-5bfc2b23c9e77c00519a93a4.jpg) Target-Date Funds: Weighing Benefits and Drawbacks for Retirement](https:\/\/www.investopedia.com\/articles\/retirement\/07\/life_cycle.asp)\n\n[![Woman typing on a laptop while a tablet or monitor showing stock prices and charts sits on her side. She has papers in front of her and a pen in her hand. ]() ![Woman typing on a laptop while a tablet or monitor showing stock prices and charts sits on her side. She has papers in front of her and a pen in her hand. ](https:\/\/www.investopedia.com\/thmb\/psuitmMUcs9GLl2NvTDD6rvYiWc=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-2148464304-838ccbb02cc0473eb597e8e4ede1c9e1.jpg) Top 7 ETF Trading Strategies for Beginners](https:\/\/www.investopedia.com\/articles\/investing\/090115\/7-best-etf-trading-strategies-beginners.asp)\n\n[![]() ![](https:\/\/www.investopedia.com\/thmb\/whKHJE-kGuFgE9ydhiT0_2R0w9Q=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/155571944-5bfc2b9646e0fb005144dd3f.jpg) A Complete Guide to Understanding ETF Benefits and Risks](https:\/\/www.investopedia.com\/articles\/exchangetradedfunds\/11\/advantages-disadvantages-etfs.asp)\n\n[![Woman checking stocks and shares data with smartphone in city]() ![Woman checking stocks and shares data with smartphone in city](https:\/\/www.investopedia.com\/thmb\/k94ZoS7fZVZdQ2MSUzlXfoQEaNE=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/woman-checking-stocks-and-shares-data-with-smartphone-in-city-949366598-4475256a95e143e1a21a9e7f9d273070.jpg) Guide to Buying ETFs: Apps and Robo-Advisors Explained](https:\/\/www.investopedia.com\/articles\/etfs\/071716\/buying-etfs-online-easy-heres-how.asp)\n\n[![A woman in a conference room looks down at a tablet in her hands]() ![A woman in a conference room looks down at a tablet in her hands](https:\/\/www.investopedia.com\/thmb\/pT96crnm2Il9O_7t0iy0g-TznPY=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-1493692333-ac3c37efe32f4446b3a981a6f3a2ab8b.jpg) Exchange Traded Notes: An Alternative to ETFs](https:\/\/www.investopedia.com\/investing\/etfs-vs-etns\/)\n\n[![A woman smiling while looking at a transparent digital interface displaying financial data and charts]() ![A woman smiling while looking at a transparent digital interface displaying financial data and charts](https:\/\/www.investopedia.com\/thmb\/bRyjvM_9QWh7DiIPWXDe-2acEvA=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-2204238294-de6b82b31c1e48b1a528fad36de90ec4.jpg) Earn Monthly Income With ETFs—No Options Knowledge Needed](https:\/\/www.investopedia.com\/generate-monthly-income-with-etfs-11740061)\n\n[![Couple talking to their financial advisor]() ![Couple talking to their financial advisor](https:\/\/www.investopedia.com\/thmb\/DGb9hVCXnaOUtVlA_YYXWNE0YWQ=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-121601981-db30e895b6d54394acc636d4e57e8b3b.jpg) The Advantages of Investing in ETFs: A Comprehensive Guide](https:\/\/www.investopedia.com\/ask\/answers\/09\/etfs-vs-mutual-funds.asp)\n\n[![A person holding a pen and working with financial documents and a calculator on a table]() ![A person holding a pen and working with financial documents and a calculator on a table](https:\/\/www.investopedia.com\/thmb\/T_ArsHWnYerRBrb4_X2-EQSHIU4=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-2067714497-19006575481a467b9e289bcb32b92c0b.jpg) Outperform Wall Street with Low-Cost S\\&P 500 ETFs](https:\/\/www.investopedia.com\/etfs-that-outperform-private-equity-11754858)\n\n[![A magnifying glass over small wood depictions of homes.]() ![A magnifying glass over small wood depictions of homes.](https:\/\/www.investopedia.com\/thmb\/vcawjf3goU6Y9yDyZdhlytgsJik=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/GettyImages-1216178346-282d5b05ae9548cf83708b210cb432e1.jpg) Discover 5 Essential Insights About REIT ETFs for Investors](https:\/\/www.investopedia.com\/5-surprising-facts-about-reit-etfs-8754940)\n\n[![Tracking approximately 1,700 publicly traded stocks spanning 90+ different industries, the Value Line Investment Survey is a highly regarded investment analysis survey used by investors around the world.]() ![Tracking approximately 1,700 publicly traded stocks spanning 90+ different industries, the Value Line Investment Survey is a highly regarded investment analysis survey used by investors around the world.](https:\/\/www.investopedia.com\/thmb\/mYxh44Qbk8VoMXfyKEmK_jq0Atk=\/282x188\/filters:no_upscale\$\$:max_bytes\$150000\$:strip_icc\$\$\/value-line-investment-survey-599cd82d9abed500114a9211.jpg) Why Young Investors Should Choose ETFs](https:\/\/www.investopedia.com\/articles\/younginvestors\/09\/etfs-ideal.asp)\n\n[Investopedia](https:\/\/www.investopedia.com\/)\n\n[Newsletter Sign Up](https:\/\/www.investopedia.com\/terms\/e\/etf.asp)\n\nFollow Us\n\n- [News](https:\/\/www.investopedia.com\/news-4427706)\n- [Investing](https:\/\/www.investopedia.com\/investing-4427685)\n- [Simulator](https:\/\/www.investopedia.com\/simulator\/?inv_to_sim=global_nav)\n- [Banking](https:\/\/www.investopedia.com\/banking-4427754)\n- [Personal 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[C](https:\/\/www.investopedia.com\/terms-beginning-with-c-4769353)\n- [D](https:\/\/www.investopedia.com\/terms-beginning-with-d-4769354)\n- [E](https:\/\/www.investopedia.com\/terms-beginning-with-e-4769355)\n- [F](https:\/\/www.investopedia.com\/terms-beginning-with-f-4769356)\n- [G](https:\/\/www.investopedia.com\/terms-beginning-with-g-4769357)\n- [H](https:\/\/www.investopedia.com\/terms-beginning-with-h-4769358)\n- [I](https:\/\/www.investopedia.com\/terms-beginning-with-i-4769359)\n- [J](https:\/\/www.investopedia.com\/terms-beginning-with-j-4769360)\n- [K](https:\/\/www.investopedia.com\/terms-beginning-with-k-4769361)\n- [L](https:\/\/www.investopedia.com\/terms-beginning-with-l-4769362)\n- [M](https:\/\/www.investopedia.com\/terms-beginning-with-m-4769363)\n- [N](https:\/\/www.investopedia.com\/terms-beginning-with-n-4769364)\n- [O](https:\/\/www.investopedia.com\/terms-beginning-with-o-4769365)\n- [P](https:\/\/www.investopedia.com\/terms-beginning-with-p-4769366)\n- [Q](https:\/\/www.investopedia.com\/terms-beginning-with-q-4769367)\n- [R](https:\/\/www.investopedia.com\/terms-beginning-with-r-4769368)\n- [S](https:\/\/www.investopedia.com\/terms-beginning-with-s-4769369)\n- [T](https:\/\/www.investopedia.com\/terms-beginning-with-t-4769370)\n- [U](https:\/\/www.investopedia.com\/terms-beginning-with-u-4769371)\n- [V](https:\/\/www.investopedia.com\/terms-beginning-with-v-4769372)\n- [W](https:\/\/www.investopedia.com\/terms-beginning-with-w-4769373)\n- [X](https:\/\/www.investopedia.com\/terms-beginning-with-x-4769374)\n- [Y](https:\/\/www.investopedia.com\/terms-beginning-with-y-4769375)\n- [Z](https:\/\/www.investopedia.com\/terms-beginning-with-z-4769376)\n\nInvestopedia is part of the [People Inc.](https:\/\/www.people.inc\/) publishing family.\n\nNewsletter Sign Up\n\nNewsletter Sign Up\n\n![]()","attrs_readable_markdown":"### Key Takeaways\n- An [exchange-traded fund](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) is a basket of securities that trades on an exchange, just like a stock.\n- ETF share prices fluctuate throughout the trading day, unlike mutual funds, which only trade once a day after the market closes.\n- ETFs offer low expense ratios and fewer brokerage commissions than buying stocks individually.\n\nGet personalized, AI-powered answers built on 27+ years of trusted expertise.\n\nAn exchange-traded fund (ETF) is an investment fund that holds multiple underlying assets. It can be bought and sold on an exchange, much like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of stocks—even specific investment strategies.\n\n[Various ETFs are available to investors](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) for income generation, speculation, or hedging risk in a portfolio. The first ETF in the U.S. was the SPDR S\\&P 500 ETF ([SPY](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=spy)), which tracks the S\\&P 500 Index.1\n\nExchange-traded funds are a simple, affordable, and easy way to invest, helping you diversify your portfolio in a low-cost way.\n\nInvestopedia \/ Zoe Hansen\n## How ETFs Work\nIn the U.S., ETFs must be registered with the Securities and Exchange Commission (SEC).2 Most ETFs are set up as [open-ended funds](https:\/\/www.investopedia.com\/terms\/o\/open-endfund.asp) and are subject to the [Investment Company Act of 1940](https:\/\/www.investopedia.com\/terms\/i\/investmentcompanyact.asp), except where the rules modify their regulatory requirements.3 Open-ended funds do not limit the number of investors involved in the product.\n\nVanguard's Consumer Staples ETF ([VDC](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=VDC)) tracks the MSCI US Investable Market Consumer Staples 25\/50 Index and has a minimum investment of \\$1.00.4 The fund holds shares of all 105 companies on the index, some more familiar than others because they produce or sell consumer items. A few of the companies held by VDC are Procter & Gamble, Costco, Coca-Cola, Walmart, and PepsiCo.5\n\nThere is no transfer of ownership because investors buy a share of the fund, which owns the shares of the underlying companies. Unlike mutual funds, ETF share prices are determined throughout the day. A mutual fund trades only once a day after the markets close.\n\n### Important\nVolatility is limited with an ETF because its holdings are diversified across various assets. Industry ETFs are also used to rotate in and out of sectors during [economic cycles](https:\/\/www.investopedia.com\/terms\/e\/economic-cycle.asp).\n## Types of ETFs\n[Online brokers](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) may allow you to invest in a wide variety of ETFs, including the following.\n\n- **Passive ETFs**: [Passive ETFs](https:\/\/www.investopedia.com\/terms\/p\/passive-etf.asp) aim to replicate the performance of a broader index—either a diversified index such as the S\\&P 500 or a more targeted sector or trend.\n- **Actively managed ETFs**: These ETFs don't target an index. Instead, portfolio managers make decisions about which securities to buy and sell. [Actively managed ETFs](https:\/\/www.investopedia.com\/terms\/a\/activemanagement.asp) offer benefits over passive ETFs, but they charge higher fees.\n- **Bond ETFs**: Used to provide regular income to investors. Distribution depends on the performance of underlying bonds, which may include government, corporate, and state and local bonds, usually called [municipal bonds](https:\/\/www.investopedia.com\/terms\/m\/municipalbond.asp). Unlike their underlying instruments, [bondETFs](https:\/\/www.investopedia.com\/terms\/b\/bond-etf.asp) do not have a maturity date.6\n- **Industry or [sector ETFs](https:\/\/www.investopedia.com\/terms\/s\/sector-etf.asp)**: A basket of stocks that track a single industry or sector, like automotive or energy. The aim is to provide diversified exposure to a single industry, one that includes high performers and new entrants with growth potential. BlackRock's iShares U.S. Technology ETF ([IYW](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=IYW)), for example, tracks the Russell 1000 Technology RIC 22.5\/45 Capped Index.7\n- **Commodity ETFs**: Invest in [commodities](https:\/\/www.investopedia.com\/terms\/c\/commodity.asp) like crude oil or gold. [Commodity ETFs](https:\/\/www.investopedia.com\/terms\/c\/commodity-etf.asp) can diversify a portfolio. Holding shares in a commodity ETF is less expensive than owning the physical commodity.\n- [**Currency ETFs**](https:\/\/www.investopedia.com\/terms\/c\/currency-etf.asp): Track the performance of currency pairs and can be used to speculate on the exchange rates of currencies based on political and economic developments in a country. Some use them to diversify a portfolio, while importers and exporters use them to hedge against [volatility](https:\/\/www.investopedia.com\/terms\/v\/volatility.asp) in currency markets.\n- **Bitcoin ETFs**: The [spot Bitcoin ETF](https:\/\/www.investopedia.com\/spot-bitcoin-etfs-8358373) was approved by the [SEC in 2024](https:\/\/www.investopedia.com\/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670).8 These ETFs expose investors to Bitcoin's price moves in their regular brokerage accounts by purchasing and holding Bitcoin as the underlying asset. [Bitcoin futures ETFs](https:\/\/www.investopedia.com\/investing\/bitcoin-etfs-explained\/), approved in 2021, use futures contracts traded on the Chicago Mercantile Exchange and track the price movements of bitcoin futures contracts.9\n- **Ethereum ETFs**: [Spot Ether ETFs](https:\/\/www.investopedia.com\/understanding-spot-ethereum-etfs-8622726) provide a way to invest in [Ether](https:\/\/www.investopedia.com\/terms\/e\/ether-cryptocurrency.asp), the native currency of the Ethereum blockchain, without directly owning the cryptocurrency. In May 2024, the SEC allowed Nasdaq, the Chicago Board Options Exchange, and the NYSE to list ETFs holding Ether.10 In [July 2024](https:\/\/www.investopedia.com\/spot-ether-etfs-start-trading-today-here-s-what-you-need-to-know-8680846), the SEC officially approved nine spot Ether ETFs to begin trading on U.S. exchanges.\n- **Inverse ETFs**: Earn gains from stock declines without having to [short stocks](https:\/\/www.investopedia.com\/terms\/s\/shortselling.asp). An inverse ETF uses [derivatives](https:\/\/www.investopedia.com\/terms\/d\/derivative.asp) to short a stock. Inverse ETFs are [exchange-traded notes (ETNs)](https:\/\/www.investopedia.com\/terms\/e\/etn.asp) and not true ETFs. An ETN is a bond that trades like a stock and is backed by an issuer such as a bank.\n- **Leveraged ETFs**: A [leveraged ETF](https:\/\/www.investopedia.com\/terms\/l\/leveraged-etf.asp) seeks to return some multiples (e.g., 2× or 3×) on the return of the underlying investments. If the S\\&P 500 rises 1%, a 2× leveraged S\\&P 500 ETF will return 2% (and if the index falls by 1%, the ETF would lose 2%). These products use debt and derivatives, such as options or futures contracts, to leverage their returns.\n\n### Fast Fact\nThere are three ETFs focused on gold mining companies, excluding inverse and leveraged ETFs and those with relatively low [assets under management (AUM)](https:\/\/www.investopedia.com\/terms\/a\/aum.asp).11\n## Pros and Cons of ETFs\nPros\n\n- Exposure to many stocks across various industries\n- Low expense ratios and commissions\n- Risk management through diversification\n- Can focus on targeted industries or commodities\n\nCons\n\n- Actively managed ETFs have higher fees\n- Single-industry-focused ETFs limit diversification\n- Lack of liquidity hinders transactions\n## How to Invest in ETFs\nETFs trade through [online brokers](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) and traditional [broker-dealers](https:\/\/www.investopedia.com\/terms\/b\/broker-dealer.asp). Individuals can also purchase ETFs in their retirement accounts. An alternative to standard brokers is a [robo-advisor](https:\/\/www.investopedia.com\/the-best-robo-advisors-8764849) like Betterment and [Wealthfront](https:\/\/www.investopedia.com\/wealthfront-review-4587933).1213\n\nAn ETF’s [expense ratio](https:\/\/www.investopedia.com\/terms\/e\/expenseratio.asp) is the cost to operate and manage the fund. ETFs typically have low expenses because they track an index.\n\nETFs are available on most online investing platforms and retirement account provider sites, along with investing apps like Robinhood. Most of these platforms offer commission-free trading, meaning that investors don’t have to pay fees to the platform providers to buy or sell ETFs.\n\nAfter creating and funding a brokerage account, investors can search for ETFs and buy and sell as desired. One of the best ways to narrow ETF options is to utilize an ETF screening tool with criteria such as trading volume, expense ratio, past performance, holdings, and commission costs.\n\n## Popular ETFs\nBelow are some [popular ETFs](https:\/\/www.investopedia.com\/the-best-etfs-8781418). Some ETFs track an index of stocks, thus creating a broad portfolio, while others target specific industries.\n\n- **SPDR S\\&P 500 (SPY)**: The oldest and most widely known ETF tracks the S\\&P 500.1\n- **iShares Russell 2000 ([IWM](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=IWM))**: An ETF that tracks the Russell 2000 small-cap index.14\n- **[Invesco QQQ](https:\/\/www.investopedia.com\/ask\/answers\/061715\/what-qqq-etf.asp) ([QQQ](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=QQQ))**: Known as \"cubes,\" it tracks the tech-heavy Nasdaq 100 Index.15\n- **SPDR Dow Jones Industrial Average ([DIA](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=DIA))**: Known as \"diamonds,\" it tracks the 30 stocks of the [Dow Jones Industrial Average (DJIA)](https:\/\/www.investopedia.com\/terms\/d\/djia.asp).16\n- **Sector ETFs**: ETFs that track individual industries and sectors such as oil ([OIH](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=OIH)), energy ([XLE](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=XLE)), financial services ([XLF](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=XLF)), real estate [investment trusts](https:\/\/www.investopedia.com\/etf-vs-investment-trust-8386101) ([IYR](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=IYR)), and biotechnology ([BBH](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=BBH)).\n- **Commodity ETFs**: These ETFs track commodities, including gold ([GLD](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=GLD)), [silver](https:\/\/www.investopedia.com\/articles\/investing\/122215\/slv-ishares-silver-trust-etf.asp) ([SLV](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=SLV)), crude oil ([USO](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=USO)), and natural gas ([UNG](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=UNG)).\n- **Country ETFs**: Funds that track the primary stock indexes in foreign countries but are traded in the U.S. in dollars. Examples include China ([MCHI](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=MCHI)), Brazil ([EWZ](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EWZ)), Japan ([EWJ](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EWJ)), and Israel ([EIS](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EIS)). Others track foreign markets across multiple countries, such as emerging market economies ([EEM](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EEM)) and developed market economies ([EFA](https:\/\/www.investopedia.com\/markets\/quote?tvwidgetsymbol=EFA)).\n## ETFs vs. Mutual Funds vs. Stocks\nMost stocks, ETFs, and mutual funds can be bought and sold without a commission. Funds and ETFs differ from stocks because some of them charge management fees, though fees have been trending lower for years. ETFs tend to have lower fees than mutual funds.\n\n|   |   |   |   |\n|---|---|---|---|\n|   | **Exchange-Traded Funds** | **Mutual Funds** | **Stocks** |\n| **What They Are** | Track a basket of securities or commodities. | Pooled investments into bonds, securities, and other instruments. | Shares in listed companies. |\n| **Prices** | Can trade at a premium or at a loss to the net asset value (NAV) of the fund. | Trade at the net asset value of the overall fund. | Based on their actual performance in the markets. |\n| **How They're Traded** | Traded during regular market hours, just like stocks. | Can be bought and sold only at the end of a trading day. | Traded during regular market hours. |\n| **Fees** | Can be purchased commission-free and are generally cheaper than mutual funds. | Some do not charge load fees, but most are more expensive than ETFs because they charge management fees. | Can be purchased commission-free on some platforms and generally do not have charges associated with them after purchase. |\n| **Ownership of Securities** | ETFs do not involve actual ownership of securities by retail investors. | Mutual funds own the securities in their basket. | Stocks involve ownership of the security. |\n| **Risk** | Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and instruments. | Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and security instruments. | Risk is concentrated in a stock’s performance. Diversity can be achieved by buying other stocks. |\n\nActive vs. Passive Equity Funds\n\n## Dividends and Taxes\nETF investors can also benefit from companies that pay [dividends](https:\/\/www.investopedia.com\/terms\/d\/dividend.asp). Dividends are a portion of earnings allocated to investors. ETF shareholders are entitled to a share of earned interest or dividends and may get a residual value if the fund is [liquidated](https:\/\/www.investopedia.com\/terms\/l\/liquidation.asp).\n\nAn ETF is more tax-efficient than a mutual fund because most buying and selling occurs through an exchange, and the ETF sponsor doesn't need to redeem shares each time an investor wishes to sell shares of the ETF.\n\nEach time an investor sells their mutual fund shares, they sell them back to the fund and incur a tax liability that must be paid by the fund's shareholders.17\n\n## Creation and Redemption\nThe supply of ETF shares is regulated through creation and redemption, which involves large specialized investors called [authorized participants (APs)](https:\/\/www.investopedia.com\/terms\/a\/authorizedparticipant.asp). When an ETF manager wants to issue additional shares, the AP buys shares of the stocks from the index—such as the S\\&P 500 tracked by the fund—and sells or exchanges them to the ETF for new ETF shares at an equal value. In turn, the AP sells the ETF shares in the market for a profit.\n\nWhen an AP sells stocks to the ETF sponsor in return for shares in the ETF, the block of shares used in the transaction is called a [creation unit](https:\/\/www.investopedia.com\/terms\/c\/creationunit.asp). If an ETF closes with a share price of \\$101 and the value of the stocks that the ETF owns is only worth \\$100 on a per-share basis, then the fund’s price of \\$101 was traded at a premium to the fund’s [net asset value (NAV)](https:\/\/www.investopedia.com\/terms\/n\/nav.asp). The NAV is an accounting mechanism that determines the overall value of the assets or stocks in an ETF.\n\nAn AP also buys shares of the ETF on the open market. The AP then sells these shares back to the ETF sponsor in exchange for individual stock shares that the AP can sell on the open market. As a result, the number of ETF shares is reduced through the process called [redemption](https:\/\/www.investopedia.com\/terms\/r\/redemption-mechanism.asp). The amount of redemption and creation activity is a function of demand in the market and whether the ETF is trading at a discount or a premium to the value of the fund’s assets.\n\n## ETFs in the United Kingdom\nThe U.K. ETF market is one of the largest and most diverse in Europe. ETFs listed on the [London Stock Exchange (LSE)](https:\/\/www.investopedia.com\/terms\/l\/lse.asp) offer exposure to various asset classes and markets, including equities, fixed income, commodities, currencies, [real estate](https:\/\/www.investopedia.com\/the-best-real-estate-crowdfunding-sites-8761523), and alternative investments.18\n\nBuying [ETFs in the U.K.](https:\/\/www.investopedia.com\/uk-etfs-how-they-work-8549739) allows inclusion in Individual Savings Accounts (ISAs), which are tax-efficient savings vehicles that allow people to invest up to £20,000 per year without paying any income or capital gains tax on their returns.19 Another benefit is that ETFs attract no stamp duty, which is a tax levied on ordinary share transactions in the U.K.20\n\nInvestors can buy shares in U.S.-listed companies from the U.K., but regulations prohibit the purchase of U.S.-listed ETFs in the U.K.21 Some U.K.-based ETFs track U.S. markets and have UCITS (Undertakings for the Collective Investment in Transferable Securities) in their names. This means the fund is fully regulated in the U.K. and allowed to track U.S. investments.22\n\nSeveral ETFs track the [FTSE 100](https:\/\/www.investopedia.com\/terms\/f\/ftse.asp) index for broad exposure to U.K. equities. These consist of the 100 largest publicly listed companies in the country. The HSBC FTSE UCITS ETF is listed on the London Stock Exchange and trades under the ticker symbol HUKX.23 The ETF has an ongoing charge of 0.07% and a dividend yield of 3.16% as of November 2025.24\n\n## Frequently Asked Questions (FAQs)\n## What Was the First Exchange-Traded Fund?\nThe distinction of being the first exchange-traded fund is often given to the SPDR S\\&P 500 ETF (SPY), launched by State Street Global Advisors on Jan. 22, 1993.1 There were, however, some precursors to SPY, including Index Participation Units listed on the [Toronto Stock Exchange (TSX)](https:\/\/www.investopedia.com\/terms\/t\/toronto-stock-exchange-tsx.asp), which tracked the Toronto 35 Index and appeared in 1990.25\n\n## How Is an ETF Different From an Index Fund?\nAn index fund usually refers to a mutual fund that tracks an index. An index ETF is constructed in much the same way and will hold the stocks of an index. However, the [difference between an index fund and an ETF](https:\/\/www.investopedia.com\/ask\/answers\/033015\/whats-difference-between-index-fund-and-etf.asp) is that an ETF tends to be more cost-effective and liquid than an index mutual fund. You can also buy an ETF throughout the trading day, while a mutual fund trades via a broker after the close of each trading day.\n\n## Do ETFs Provide Diversification?\nNearly all ETFs provide [diversification](https:\/\/www.investopedia.com\/articles\/investing\/030116\/portfolio-diversification-done-right.asp) relative to individual stock purchases. Still, some ETFs are highly concentrated—either in the number of different securities they hold or in the weighting of those securities. For example, a fund may concentrate half of its assets in two or three positions, offering less diversification than other funds with broader asset distribution.\n## The Bottom Line\nExchange-traded funds represent a cost-effective way to gain exposure to a broad basket of securities with a limited budget. Investors can build a portfolio that holds one or many ETFs. Instead of buying individual stocks, [investors buy shares of a fund](https:\/\/www.investopedia.com\/the-best-brokers-for-etfs-8763336) that targets a representative cross-section of the wider market. However, there can be additional expenses to keep in mind when investing in an ETF.","meta_canonical":null}

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URL	https://www.investopedia.com/terms/e/etf.asp
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Meta Title	Exchange-Traded Fund (ETF): What It Is and How to Invest
Meta Description	Learn what an exchange-traded fund (ETF) is, how it works, its key benefits, risks, and simple steps to start investing in ETFs with confidence for beginners.
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Boilerpipe Text	Key Takeaways An exchange-traded fund is a basket of securities that trades on an exchange, just like a stock. ETF share prices fluctuate throughout the trading day, unlike mutual funds, which only trade once a day after the market closes. ETFs offer low expense ratios and fewer brokerage commissions than buying stocks individually. Get personalized, AI-powered answers built on 27+ years of trusted expertise. An exchange-traded fund (ETF) is an investment fund that holds multiple underlying assets. It can be bought and sold on an exchange, much like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of stocks—even specific investment strategies. Various ETFs are available to investors for income generation, speculation, or hedging risk in a portfolio. The first ETF in the U.S. was the SPDR S&P 500 ETF ( SPY ), which tracks the S&P 500 Index. 1 Exchange-traded funds are a simple, affordable, and easy way to invest, helping you diversify your portfolio in a low-cost way. Investopedia / Zoe Hansen How ETFs Work In the U.S., ETFs must be registered with the Securities and Exchange Commission (SEC). 2 Most ETFs are set up as open-ended funds and are subject to the Investment Company Act of 1940 , except where the rules modify their regulatory requirements. 3 Open-ended funds do not limit the number of investors involved in the product. Vanguard's Consumer Staples ETF ( VDC ) tracks the MSCI US Investable Market Consumer Staples 25/50 Index and has a minimum investment of $1.00. 4 The fund holds shares of all 105 companies on the index, some more familiar than others because they produce or sell consumer items. A few of the companies held by VDC are Procter & Gamble, Costco, Coca-Cola, Walmart, and PepsiCo. 5 There is no transfer of ownership because investors buy a share of the fund, which owns the shares of the underlying companies. Unlike mutual funds, ETF share prices are determined throughout the day. A mutual fund trades only once a day after the markets close. Important Volatility is limited with an ETF because its holdings are diversified across various assets. Industry ETFs are also used to rotate in and out of sectors during economic cycles . Types of ETFs Online brokers may allow you to invest in a wide variety of ETFs, including the following. Passive ETFs : Passive ETFs aim to replicate the performance of a broader index—either a diversified index such as the S&P 500 or a more targeted sector or trend. Actively managed ETFs : These ETFs don't target an index. Instead, portfolio managers make decisions about which securities to buy and sell. Actively managed ETFs offer benefits over passive ETFs, but they charge higher fees. Bond ETFs : Used to provide regular income to investors. Distribution depends on the performance of underlying bonds, which may include government, corporate, and state and local bonds, usually called municipal bonds . Unlike their underlying instruments, bond ETFs do not have a maturity date. 6 Industry or sector ETFs : A basket of stocks that track a single industry or sector, like automotive or energy. The aim is to provide diversified exposure to a single industry, one that includes high performers and new entrants with growth potential. BlackRock's iShares U.S. Technology ETF ( IYW ), for example, tracks the Russell 1000 Technology RIC 22.5/45 Capped Index. 7 Commodity ETFs : Invest in commodities like crude oil or gold. Commodity ETFs can diversify a portfolio. Holding shares in a commodity ETF is less expensive than owning the physical commodity. Currency ETFs : Track the performance of currency pairs and can be used to speculate on the exchange rates of currencies based on political and economic developments in a country. Some use them to diversify a portfolio, while importers and exporters use them to hedge against volatility in currency markets. Bitcoin ETFs : The spot Bitcoin ETF was approved by the SEC in 2024 . 8 These ETFs expose investors to Bitcoin's price moves in their regular brokerage accounts by purchasing and holding Bitcoin as the underlying asset. Bitcoin futures ETFs , approved in 2021, use futures contracts traded on the Chicago Mercantile Exchange and track the price movements of bitcoin futures contracts. 9 Ethereum ETFs : Spot Ether ETFs provide a way to invest in Ether , the native currency of the Ethereum blockchain, without directly owning the cryptocurrency. In May 2024, the SEC allowed Nasdaq, the Chicago Board Options Exchange, and the NYSE to list ETFs holding Ether. 10 In July 2024 , the SEC officially approved nine spot Ether ETFs to begin trading on U.S. exchanges. Inverse ETFs : Earn gains from stock declines without having to short stocks . An inverse ETF uses derivatives to short a stock. Inverse ETFs are exchange-traded notes (ETNs) and not true ETFs. An ETN is a bond that trades like a stock and is backed by an issuer such as a bank. Leveraged ETFs : A leveraged ETF seeks to return some multiples (e.g., 2× or 3×) on the return of the underlying investments. If the S&P 500 rises 1%, a 2× leveraged S&P 500 ETF will return 2% (and if the index falls by 1%, the ETF would lose 2%). These products use debt and derivatives, such as options or futures contracts, to leverage their returns. Fast Fact There are three ETFs focused on gold mining companies, excluding inverse and leveraged ETFs and those with relatively low assets under management (AUM) . 11 Pros and Cons of ETFs Pros Exposure to many stocks across various industries Low expense ratios and commissions Risk management through diversification Can focus on targeted industries or commodities Cons Actively managed ETFs have higher fees Single-industry-focused ETFs limit diversification Lack of liquidity hinders transactions How to Invest in ETFs ETFs trade through online brokers and traditional broker-dealers . Individuals can also purchase ETFs in their retirement accounts. An alternative to standard brokers is a robo-advisor like Betterment and Wealthfront . 12 13 An ETF’s expense ratio is the cost to operate and manage the fund. ETFs typically have low expenses because they track an index. ETFs are available on most online investing platforms and retirement account provider sites, along with investing apps like Robinhood. Most of these platforms offer commission-free trading, meaning that investors don’t have to pay fees to the platform providers to buy or sell ETFs. After creating and funding a brokerage account, investors can search for ETFs and buy and sell as desired. One of the best ways to narrow ETF options is to utilize an ETF screening tool with criteria such as trading volume, expense ratio, past performance, holdings, and commission costs. Popular ETFs Below are some popular ETFs . Some ETFs track an index of stocks, thus creating a broad portfolio, while others target specific industries. SPDR S&P 500 (SPY) : The oldest and most widely known ETF tracks the S&P 500. 1 iShares Russell 2000 ( IWM ) : An ETF that tracks the Russell 2000 small-cap index. 14 Invesco QQQ ( QQQ ) : Known as "cubes," it tracks the tech-heavy Nasdaq 100 Index. 15 SPDR Dow Jones Industrial Average ( DIA ) : Known as "diamonds," it tracks the 30 stocks of the Dow Jones Industrial Average (DJIA) . 16 Sector ETFs : ETFs that track individual industries and sectors such as oil ( OIH ), energy ( XLE ), financial services ( XLF ), real estate investment trusts ( IYR ), and biotechnology ( BBH ). Commodity ETFs : These ETFs track commodities, including gold ( GLD ), silver ( SLV ), crude oil ( USO ), and natural gas ( UNG ). Country ETFs : Funds that track the primary stock indexes in foreign countries but are traded in the U.S. in dollars. Examples include China ( MCHI ), Brazil ( EWZ ), Japan ( EWJ ), and Israel ( EIS ). Others track foreign markets across multiple countries, such as emerging market economies ( EEM ) and developed market economies ( EFA ). ETFs vs. Mutual Funds vs. Stocks Most stocks, ETFs, and mutual funds can be bought and sold without a commission. Funds and ETFs differ from stocks because some of them charge management fees, though fees have been trending lower for years. ETFs tend to have lower fees than mutual funds. Exchange-Traded Funds Mutual Funds Stocks What They Are Track a basket of securities or commodities. Pooled investments into bonds, securities, and other instruments. Shares in listed companies. Prices Can trade at a premium or at a loss to the net asset value (NAV) of the fund. Trade at the net asset value of the overall fund. Based on their actual performance in the markets. How They're Traded Traded during regular market hours, just like stocks. Can be bought and sold only at the end of a trading day. Traded during regular market hours. Fees Can be purchased commission-free and are generally cheaper than mutual funds. Some do not charge load fees, but most are more expensive than ETFs because they charge management fees. Can be purchased commission-free on some platforms and generally do not have charges associated with them after purchase. Ownership of Securities ETFs do not involve actual ownership of securities by retail investors. Mutual funds own the securities in their basket. Stocks involve ownership of the security. Risk Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and instruments. Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and security instruments. Risk is concentrated in a stock’s performance. Diversity can be achieved by buying other stocks. Active vs. Passive Equity Funds Dividends and Taxes ETF investors can also benefit from companies that pay dividends . Dividends are a portion of earnings allocated to investors. ETF shareholders are entitled to a share of earned interest or dividends and may get a residual value if the fund is liquidated . An ETF is more tax-efficient than a mutual fund because most buying and selling occurs through an exchange, and the ETF sponsor doesn't need to redeem shares each time an investor wishes to sell shares of the ETF. Each time an investor sells their mutual fund shares, they sell them back to the fund and incur a tax liability that must be paid by the fund's shareholders. 17 Creation and Redemption The supply of ETF shares is regulated through creation and redemption, which involves large specialized investors called authorized participants (APs) . When an ETF manager wants to issue additional shares, the AP buys shares of the stocks from the index—such as the S&P 500 tracked by the fund—and sells or exchanges them to the ETF for new ETF shares at an equal value. In turn, the AP sells the ETF shares in the market for a profit. When an AP sells stocks to the ETF sponsor in return for shares in the ETF, the block of shares used in the transaction is called a creation unit . If an ETF closes with a share price of $101 and the value of the stocks that the ETF owns is only worth $100 on a per-share basis, then the fund’s price of $101 was traded at a premium to the fund’s net asset value (NAV) . The NAV is an accounting mechanism that determines the overall value of the assets or stocks in an ETF. An AP also buys shares of the ETF on the open market. The AP then sells these shares back to the ETF sponsor in exchange for individual stock shares that the AP can sell on the open market. As a result, the number of ETF shares is reduced through the process called redemption . The amount of redemption and creation activity is a function of demand in the market and whether the ETF is trading at a discount or a premium to the value of the fund’s assets. ETFs in the United Kingdom The U.K. ETF market is one of the largest and most diverse in Europe. ETFs listed on the London Stock Exchange (LSE) offer exposure to various asset classes and markets, including equities, fixed income, commodities, currencies, real estate , and alternative investments. 18 Buying ETFs in the U.K. allows inclusion in Individual Savings Accounts (ISAs), which are tax-efficient savings vehicles that allow people to invest up to £20,000 per year without paying any income or capital gains tax on their returns. 19 Another benefit is that ETFs attract no stamp duty, which is a tax levied on ordinary share transactions in the U.K. 20 Investors can buy shares in U.S.-listed companies from the U.K., but regulations prohibit the purchase of U.S.-listed ETFs in the U.K. 21 Some U.K.-based ETFs track U.S. markets and have UCITS (Undertakings for the Collective Investment in Transferable Securities) in their names. This means the fund is fully regulated in the U.K. and allowed to track U.S. investments. 22 Several ETFs track the FTSE 100 index for broad exposure to U.K. equities. These consist of the 100 largest publicly listed companies in the country. The HSBC FTSE UCITS ETF is listed on the London Stock Exchange and trades under the ticker symbol HUKX. 23 The ETF has an ongoing charge of 0.07% and a dividend yield of 3.16% as of November 2025. 24 Frequently Asked Questions (FAQs) What Was the First Exchange-Traded Fund? The distinction of being the first exchange-traded fund is often given to the SPDR S&P 500 ETF (SPY), launched by State Street Global Advisors on Jan. 22, 1993. 1 There were, however, some precursors to SPY, including Index Participation Units listed on the Toronto Stock Exchange (TSX) , which tracked the Toronto 35 Index and appeared in 1990. 25 How Is an ETF Different From an Index Fund? An index fund usually refers to a mutual fund that tracks an index. An index ETF is constructed in much the same way and will hold the stocks of an index. However, the difference between an index fund and an ETF is that an ETF tends to be more cost-effective and liquid than an index mutual fund. You can also buy an ETF throughout the trading day, while a mutual fund trades via a broker after the close of each trading day. Do ETFs Provide Diversification? Nearly all ETFs provide diversification relative to individual stock purchases. Still, some ETFs are highly concentrated—either in the number of different securities they hold or in the weighting of those securities. For example, a fund may concentrate half of its assets in two or three positions, offering less diversification than other funds with broader asset distribution. The Bottom Line Exchange-traded funds represent a cost-effective way to gain exposure to a broad basket of securities with a limited budget. Investors can build a portfolio that holds one or many ETFs. Instead of buying individual stocks, investors buy shares of a fund that targets a representative cross-section of the wider market. However, there can be additional expenses to keep in mind when investing in an ETF.
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[Dividends and Taxes](https://www.investopedia.com/terms/e/etf.asp#toc-dividends-and-taxes) - [Creation and Redemption](https://www.investopedia.com/terms/e/etf.asp#toc-creation-and-redemption) - [ETFs in the United Kingdom](https://www.investopedia.com/terms/e/etf.asp#toc-etfs-in-the-united-kingdom) - [FAQs](https://www.investopedia.com/terms/e/etf.asp#toc-frequently-asked-questions-faqs) - [The Bottom Line](https://www.investopedia.com/terms/e/etf.asp#toc-the-bottom-line) By [James Chen](https://www.investopedia.com/contributors/101529/) ![]() ![](https://www.investopedia.com/thmb/0_uRdNfKlZQBkY-Iz_0sgHi4ZQE=/200x200/filters:no_upscale:max_bytes$150000$:strip_icc/photo__james_chen-5bfc26144cedfd0026c00af8.jpeg) [Full Bio](https://www.investopedia.com/contributors/101529/) James Chen, CMT is an expert trader, investment adviser, and global market strategist. Learn about our [editorial policies](https://www.investopedia.com/legal-4768893#editorial-policy) Updated December 05, 2025 Reviewed by [Gordon Scott](https://www.investopedia.com/contributors/82594/) ![]() ![](https://www.investopedia.com/thmb/ONkGcALhxqKz7-OKReR1Lh4IcjE=/200x200/filters:no_upscale:max_bytes$150000$:strip_icc/gordonscottphoto-5bfc26c446e0fb00265b0ed4.jpg) Reviewed by Gordon Scott [Full Bio](https://www.investopedia.com/contributors/82594/) Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT). Learn about our [Financial Review Board](https://www.investopedia.com/investopedia-financial-review-board-5076269) Fact checked by [Betsy Petrick](https://www.investopedia.com/betsy-petrick-8415699) ![Betsy Petrick]() ![Betsy Petrick](https://www.investopedia.com/thmb/RpshZw_SF27XXcIiF5RtuLC338A=/200x200/filters:no_upscale:max_bytes$150000$:strip_icc/me-eb8cbda9691b4e53820b28cc0c7a990a.jpg) Fact checked by Betsy Petrick [Full Bio](https://www.investopedia.com/betsy-petrick-8415699) Betsy began her career in international finance and it has since grown into a comprehensive approach to journalism as she's been able to tap into that experience along with her time spent in academia and professional services. Learn about our [editorial policies](https://www.investopedia.com/legal-4768893#editorial-policy) Part of the Series Exchange-Traded Fund Guide for Beginners [Exchange-Traded Fund (ETF): What It Is and How to Invest](https://www.investopedia.com/terms/e/etf.asp) CURRENT ARTICLE ETF Basics 1. [7 Best ETF Trading Strategies for Beginners](https://www.investopedia.com/articles/investing/090115/7-best-etf-trading-strategies-beginners.asp) 2. [Introduction to Exchange-Traded Funds (ETFs)](https://www.investopedia.com/articles/01/082901.asp) 3. [7 Easy-to-Understand ETFs to Replace A Savings Account](https://www.investopedia.com/financial-edge/0113/7-easy-to-understand-etfs-to-replace-a-savings-account.aspx) 4. [Brief History of ETFs](https://www.investopedia.com/articles/exchangetradedfunds/12/brief-history-exchange-traded-funds.asp) 5. [ETFs Open Secret as a Tax Loophole](https://www.investopedia.com/news/etf-open-secret-theyre-tax-loophole/) 6. [ETF Market Price vs. ETF Net Asset Value: What's the Difference?](https://www.investopedia.com/ask/answers/052815/what-difference-between-etfs-net-asset-value-nav-and-its-market-price.asp) 7. [Going Green With Exchange-Traded Funds (ETFs)](https://www.investopedia.com/articles/exchangetradedfunds/11/going-green-with-etfs.asp) 8. [How Are ETF Fees Deducted?](https://www.investopedia.com/ask/answers/071816/how-are-etf-fees-deducted.asp) 9. [How are ETFs Taxed?](https://www.investopedia.com/articles/exchangetradedfunds/08/etf-taxes-introduction.asp) Pros and Cons 1. [ETFs Can Be Safe Investments If Used Correctly](https://www.investopedia.com/articles/investing/020916/etfs-can-be-safe-investments-if-used-correctly.asp) 2. [Advantages and Disadvantages of ETFs](https://www.investopedia.com/articles/exchangetradedfunds/11/advantages-disadvantages-etfs.asp) 3. [Advantages of Exchange-Traded Funds (ETFs)](https://www.investopedia.com/ask/answers/09/etfs-vs-mutual-funds.asp) 4. [Why ETF Investing Is Ideal for Young Investors](https://www.investopedia.com/articles/younginvestors/09/etfs-ideal.asp) 5. [What Are the Biggest Risks When Investing in ETFs?](https://www.investopedia.com/articles/etfs-mutual-funds/061416/biggest-etf-risks.asp) Investing in ETFs 1. [How To Pick the Best ETF](https://www.investopedia.com/articles/exchangetradedfunds/08/etf-choose-best.asp) 2. [New Ways to Buy ETFs Online](https://www.investopedia.com/articles/etfs/071716/buying-etfs-online-easy-heres-how.asp) 3. [Dollar-Cost Averaging With ETFs](https://www.investopedia.com/articles/mutualfund/05/etfdollarcost.asp) 4. [Are ETFs a Good Fit for 401(k) Plans?](https://www.investopedia.com/articles/financial-advisors/101315/are-etfs-good-fit-401k-plans.asp) 5. [Exchange Traded Notes: An Alternative to ETFs](https://www.investopedia.com/investing/etfs-vs-etns/) 6. [Exchange Traded Product (ETP): Definition, Types, and Example](https://www.investopedia.com/terms/e/exchange-traded-products-etp.asp) 7. [Index Fund vs. ETF: What's the Difference?](https://www.investopedia.com/ask/answers/033015/whats-difference-between-index-fund-and-etf.asp) ETFs and Mutual Funds 1. [Mutual Fund vs. ETF: What's the Difference?](https://www.investopedia.com/articles/exchangetradedfunds/08/etf-mutual-fund-difference.asp) 2. [ETFs vs. Mutual Funds: Which Is Better for Young Investors?](https://www.investopedia.com/articles/investing/021916/etfs-vs-mutual-funds-which-better-young-investors.asp) 3. [Why Are ETF Fees Lower Than Mutual Fund Fees?](https://www.investopedia.com/articles/investing/102915/why-are-etf-fees-lower-mutual-funds.asp) Definition An exchange-traded fund (ETF) pools a group of securities into a fund and can be traded like an individual stock on an exchange. ### Key Takeaways - An [exchange-traded fund](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) is a basket of securities that trades on an exchange, just like a stock. - ETF share prices fluctuate throughout the trading day, unlike mutual funds, which only trade once a day after the market closes. - ETFs offer low expense ratios and fewer brokerage commissions than buying stocks individually. Get personalized, AI-powered answers built on 27+ years of trusted expertise. ASK ## What Is an Exchange-Traded Fund (ETF)? An exchange-traded fund (ETF) is an investment fund that holds multiple underlying assets. It can be bought and sold on an exchange, much like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of stocks—even specific investment strategies. [Various ETFs are available to investors](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) for income generation, speculation, or hedging risk in a portfolio. The first ETF in the U.S. was the SPDR S\&P 500 ETF ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=spy)), which tracks the S\&P 500 Index.1 ![Illustration of two piggy banks with arrows between them accompanied by text explaining ETFs: An echange-traded fund (EFT is a type of pooled investment security that holds multiple underlying assets, rather than only one.](https://www.investopedia.com/thmb/_uAQGkkLGdgz3ktVgvGcwDOi0VA=/1500x0/filters:no_upscale:max_bytes$150000$:strip_icc/EFT_final-45a9ca8cf7e948608a3b8dae38b66393.png) ![Illustration of two piggy banks with arrows between them accompanied by text explaining ETFs: An echange-traded fund (EFT is a type of pooled investment security that holds multiple underlying assets, rather than only one.](https://www.investopedia.com/thmb/_uAQGkkLGdgz3ktVgvGcwDOi0VA=/1500x0/filters:no_upscale:max_bytes$150000$:strip_icc/EFT_final-45a9ca8cf7e948608a3b8dae38b66393.png) Exchange-traded funds are a simple, affordable, and easy way to invest, helping you diversify your portfolio in a low-cost way. Investopedia / Zoe Hansen ## How ETFs Work In the U.S., ETFs must be registered with the Securities and Exchange Commission (SEC).2 Most ETFs are set up as [open-ended funds](https://www.investopedia.com/terms/o/open-endfund.asp) and are subject to the [Investment Company Act of 1940](https://www.investopedia.com/terms/i/investmentcompanyact.asp), except where the rules modify their regulatory requirements.3 Open-ended funds do not limit the number of investors involved in the product. Vanguard's Consumer Staples ETF ([VDC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VDC)) tracks the MSCI US Investable Market Consumer Staples 25/50 Index and has a minimum investment of \$1.00.4 The fund holds shares of all 105 companies on the index, some more familiar than others because they produce or sell consumer items. A few of the companies held by VDC are Procter & Gamble, Costco, Coca-Cola, Walmart, and PepsiCo.5 Ready to Take the Next Step? Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. There is no transfer of ownership because investors buy a share of the fund, which owns the shares of the underlying companies. Unlike mutual funds, ETF share prices are determined throughout the day. A mutual fund trades only once a day after the markets close. ### Important Volatility is limited with an ETF because its holdings are diversified across various assets. Industry ETFs are also used to rotate in and out of sectors during [economic cycles](https://www.investopedia.com/terms/e/economic-cycle.asp). ## Types of ETFs [Online brokers](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) may allow you to invest in a wide variety of ETFs, including the following. - Passive ETFs: [Passive ETFs](https://www.investopedia.com/terms/p/passive-etf.asp) aim to replicate the performance of a broader index—either a diversified index such as the S\&P 500 or a more targeted sector or trend. - Actively managed ETFs: These ETFs don't target an index. Instead, portfolio managers make decisions about which securities to buy and sell. [Actively managed ETFs](https://www.investopedia.com/terms/a/activemanagement.asp) offer benefits over passive ETFs, but they charge higher fees. - Bond ETFs: Used to provide regular income to investors. Distribution depends on the performance of underlying bonds, which may include government, corporate, and state and local bonds, usually called [municipal bonds](https://www.investopedia.com/terms/m/municipalbond.asp). Unlike their underlying instruments, [bondETFs](https://www.investopedia.com/terms/b/bond-etf.asp) do not have a maturity date.6 - Industry or [sector ETFs](https://www.investopedia.com/terms/s/sector-etf.asp): A basket of stocks that track a single industry or sector, like automotive or energy. The aim is to provide diversified exposure to a single industry, one that includes high performers and new entrants with growth potential. BlackRock's iShares U.S. Technology ETF ([IYW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IYW)), for example, tracks the Russell 1000 Technology RIC 22.5/45 Capped Index.7 - Commodity ETFs: Invest in [commodities](https://www.investopedia.com/terms/c/commodity.asp) like crude oil or gold. [Commodity ETFs](https://www.investopedia.com/terms/c/commodity-etf.asp) can diversify a portfolio. Holding shares in a commodity ETF is less expensive than owning the physical commodity. - [Currency ETFs](https://www.investopedia.com/terms/c/currency-etf.asp): Track the performance of currency pairs and can be used to speculate on the exchange rates of currencies based on political and economic developments in a country. Some use them to diversify a portfolio, while importers and exporters use them to hedge against [volatility](https://www.investopedia.com/terms/v/volatility.asp) in currency markets. - Bitcoin ETFs: The [spot Bitcoin ETF](https://www.investopedia.com/spot-bitcoin-etfs-8358373) was approved by the [SEC in 2024](https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670).8 These ETFs expose investors to Bitcoin's price moves in their regular brokerage accounts by purchasing and holding Bitcoin as the underlying asset. [Bitcoin futures ETFs](https://www.investopedia.com/investing/bitcoin-etfs-explained/), approved in 2021, use futures contracts traded on the Chicago Mercantile Exchange and track the price movements of bitcoin futures contracts.9 - Ethereum ETFs: [Spot Ether ETFs](https://www.investopedia.com/understanding-spot-ethereum-etfs-8622726) provide a way to invest in [Ether](https://www.investopedia.com/terms/e/ether-cryptocurrency.asp), the native currency of the Ethereum blockchain, without directly owning the cryptocurrency. In May 2024, the SEC allowed Nasdaq, the Chicago Board Options Exchange, and the NYSE to list ETFs holding Ether.10 In [July 2024](https://www.investopedia.com/spot-ether-etfs-start-trading-today-here-s-what-you-need-to-know-8680846), the SEC officially approved nine spot Ether ETFs to begin trading on U.S. exchanges. - Inverse ETFs: Earn gains from stock declines without having to [short stocks](https://www.investopedia.com/terms/s/shortselling.asp). An inverse ETF uses [derivatives](https://www.investopedia.com/terms/d/derivative.asp) to short a stock. Inverse ETFs are [exchange-traded notes (ETNs)](https://www.investopedia.com/terms/e/etn.asp) and not true ETFs. An ETN is a bond that trades like a stock and is backed by an issuer such as a bank. - Leveraged ETFs: A [leveraged ETF](https://www.investopedia.com/terms/l/leveraged-etf.asp) seeks to return some multiples (e.g., 2× or 3×) on the return of the underlying investments. If the S\&P 500 rises 1%, a 2× leveraged S\&P 500 ETF will return 2% (and if the index falls by 1%, the ETF would lose 2%). These products use debt and derivatives, such as options or futures contracts, to leverage their returns. ### Fast Fact There are three ETFs focused on gold mining companies, excluding inverse and leveraged ETFs and those with relatively low [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp).11 ## Pros and Cons of ETFs Pros - Exposure to many stocks across various industries - Low expense ratios and commissions - Risk management through diversification - Can focus on targeted industries or commodities Cons - Actively managed ETFs have higher fees - Single-industry-focused ETFs limit diversification - Lack of liquidity hinders transactions ## How to Invest in ETFs ETFs trade through [online brokers](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) and traditional [broker-dealers](https://www.investopedia.com/terms/b/broker-dealer.asp). Individuals can also purchase ETFs in their retirement accounts. An alternative to standard brokers is a [robo-advisor](https://www.investopedia.com/the-best-robo-advisors-8764849) like Betterment and [Wealthfront](https://www.investopedia.com/wealthfront-review-4587933).1213 An ETF’s [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp) is the cost to operate and manage the fund. ETFs typically have low expenses because they track an index. ETFs are available on most online investing platforms and retirement account provider sites, along with investing apps like Robinhood. Most of these platforms offer commission-free trading, meaning that investors don’t have to pay fees to the platform providers to buy or sell ETFs. After creating and funding a brokerage account, investors can search for ETFs and buy and sell as desired. One of the best ways to narrow ETF options is to utilize an ETF screening tool with criteria such as trading volume, expense ratio, past performance, holdings, and commission costs. ### Tip Order a copy of Investopedia's [What To Do With \$10,000](https://www.amazon.com/dp/1547862912/ref=sr_1_7?keywords=investopedia&qid=1684168403&sr=8-7) for more wealth-building advice. ## Popular ETFs Below are some [popular ETFs](https://www.investopedia.com/the-best-etfs-8781418). Some ETFs track an index of stocks, thus creating a broad portfolio, while others target specific industries. - SPDR S\&P 500 (SPY): The oldest and most widely known ETF tracks the S\&P 500.1 - iShares Russell 2000 ([IWM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IWM)): An ETF that tracks the Russell 2000 small-cap index.14 - [Invesco QQQ](https://www.investopedia.com/ask/answers/061715/what-qqq-etf.asp) ([QQQ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQQ)): Known as "cubes," it tracks the tech-heavy Nasdaq 100 Index.15 - SPDR Dow Jones Industrial Average ([DIA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DIA)): Known as "diamonds," it tracks the 30 stocks of the [Dow Jones Industrial Average (DJIA)](https://www.investopedia.com/terms/d/djia.asp).16 - Sector ETFs: ETFs that track individual industries and sectors such as oil ([OIH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=OIH)), energy ([XLE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLE)), financial services ([XLF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLF)), real estate [investment trusts](https://www.investopedia.com/etf-vs-investment-trust-8386101) ([IYR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IYR)), and biotechnology ([BBH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BBH)). - Commodity ETFs: These ETFs track commodities, including gold ([GLD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GLD)), [silver](https://www.investopedia.com/articles/investing/122215/slv-ishares-silver-trust-etf.asp) ([SLV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SLV)), crude oil ([USO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=USO)), and natural gas ([UNG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UNG)). - Country ETFs: Funds that track the primary stock indexes in foreign countries but are traded in the U.S. in dollars. Examples include China ([MCHI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MCHI)), Brazil ([EWZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWZ)), Japan ([EWJ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWJ)), and Israel ([EIS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EIS)). Others track foreign markets across multiple countries, such as emerging market economies ([EEM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EEM)) and developed market economies ([EFA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EFA)). ## ETFs vs. Mutual Funds vs. Stocks Most stocks, ETFs, and mutual funds can be bought and sold without a commission. Funds and ETFs differ from stocks because some of them charge management fees, though fees have been trending lower for years. ETFs tend to have lower fees than mutual funds. \| \| \| \| \| \|---\|---\|---\|---\| \| \| Exchange-Traded Funds \| Mutual Funds \| Stocks \| \| What They Are \| Track a basket of securities or commodities. \| Pooled investments into bonds, securities, and other instruments. \| Shares in listed companies. \| \| Prices \| Can trade at a premium or at a loss to the net asset value (NAV) of the fund. \| Trade at the net asset value of the overall fund. \| Based on their actual performance in the markets. \| \| How They're Traded \| Traded during regular market hours, just like stocks. \| Can be bought and sold only at the end of a trading day. \| Traded during regular market hours. \| \| Fees \| Can be purchased commission-free and are generally cheaper than mutual funds. \| Some do not charge load fees, but most are more expensive than ETFs because they charge management fees. \| Can be purchased commission-free on some platforms and generally do not have charges associated with them after purchase. \| \| Ownership of Securities \| ETFs do not involve actual ownership of securities by retail investors. \| Mutual funds own the securities in their basket. \| Stocks involve ownership of the security. \| \| Risk \| Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and instruments. \| Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and security instruments. \| Risk is concentrated in a stock’s performance. Diversity can be achieved by buying other stocks. \| Active vs. Passive Equity Funds ## Dividends and Taxes ETF investors can also benefit from companies that pay [dividends](https://www.investopedia.com/terms/d/dividend.asp). Dividends are a portion of earnings allocated to investors. ETF shareholders are entitled to a share of earned interest or dividends and may get a residual value if the fund is [liquidated](https://www.investopedia.com/terms/l/liquidation.asp). An ETF is more tax-efficient than a mutual fund because most buying and selling occurs through an exchange, and the ETF sponsor doesn't need to redeem shares each time an investor wishes to sell shares of the ETF. Each time an investor sells their mutual fund shares, they sell them back to the fund and incur a tax liability that must be paid by the fund's shareholders.17 ## Creation and Redemption The supply of ETF shares is regulated through creation and redemption, which involves large specialized investors called [authorized participants (APs)](https://www.investopedia.com/terms/a/authorizedparticipant.asp). When an ETF manager wants to issue additional shares, the AP buys shares of the stocks from the index—such as the S\&P 500 tracked by the fund—and sells or exchanges them to the ETF for new ETF shares at an equal value. In turn, the AP sells the ETF shares in the market for a profit. When an AP sells stocks to the ETF sponsor in return for shares in the ETF, the block of shares used in the transaction is called a [creation unit](https://www.investopedia.com/terms/c/creationunit.asp). If an ETF closes with a share price of \$101 and the value of the stocks that the ETF owns is only worth \$100 on a per-share basis, then the fund’s price of \$101 was traded at a premium to the fund’s [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp). The NAV is an accounting mechanism that determines the overall value of the assets or stocks in an ETF. An AP also buys shares of the ETF on the open market. The AP then sells these shares back to the ETF sponsor in exchange for individual stock shares that the AP can sell on the open market. As a result, the number of ETF shares is reduced through the process called [redemption](https://www.investopedia.com/terms/r/redemption-mechanism.asp). The amount of redemption and creation activity is a function of demand in the market and whether the ETF is trading at a discount or a premium to the value of the fund’s assets. ## ETFs in the United Kingdom The U.K. ETF market is one of the largest and most diverse in Europe. ETFs listed on the [London Stock Exchange (LSE)](https://www.investopedia.com/terms/l/lse.asp) offer exposure to various asset classes and markets, including equities, fixed income, commodities, currencies, [real estate](https://www.investopedia.com/the-best-real-estate-crowdfunding-sites-8761523), and alternative investments.18 Buying [ETFs in the U.K.](https://www.investopedia.com/uk-etfs-how-they-work-8549739) allows inclusion in Individual Savings Accounts (ISAs), which are tax-efficient savings vehicles that allow people to invest up to £20,000 per year without paying any income or capital gains tax on their returns.19 Another benefit is that ETFs attract no stamp duty, which is a tax levied on ordinary share transactions in the U.K.20 Investors can buy shares in U.S.-listed companies from the U.K., but regulations prohibit the purchase of U.S.-listed ETFs in the U.K.21 Some U.K.-based ETFs track U.S. markets and have UCITS (Undertakings for the Collective Investment in Transferable Securities) in their names. This means the fund is fully regulated in the U.K. and allowed to track U.S. investments.22 Several ETFs track the [FTSE 100](https://www.investopedia.com/terms/f/ftse.asp) index for broad exposure to U.K. equities. These consist of the 100 largest publicly listed companies in the country. The HSBC FTSE UCITS ETF is listed on the London Stock Exchange and trades under the ticker symbol HUKX.23 The ETF has an ongoing charge of 0.07% and a dividend yield of 3.16% as of November 2025.24 ## Frequently Asked Questions (FAQs) ## What Was the First Exchange-Traded Fund? The distinction of being the first exchange-traded fund is often given to the SPDR S\&P 500 ETF (SPY), launched by State Street Global Advisors on Jan. 22, 1993.1 There were, however, some precursors to SPY, including Index Participation Units listed on the [Toronto Stock Exchange (TSX)](https://www.investopedia.com/terms/t/toronto-stock-exchange-tsx.asp), which tracked the Toronto 35 Index and appeared in 1990.25 ## How Is an ETF Different From an Index Fund? An index fund usually refers to a mutual fund that tracks an index. An index ETF is constructed in much the same way and will hold the stocks of an index. However, the [difference between an index fund and an ETF](https://www.investopedia.com/ask/answers/033015/whats-difference-between-index-fund-and-etf.asp) is that an ETF tends to be more cost-effective and liquid than an index mutual fund. You can also buy an ETF throughout the trading day, while a mutual fund trades via a broker after the close of each trading day. ## Do ETFs Provide Diversification? Nearly all ETFs provide [diversification](https://www.investopedia.com/articles/investing/030116/portfolio-diversification-done-right.asp) relative to individual stock purchases. Still, some ETFs are highly concentrated—either in the number of different securities they hold or in the weighting of those securities. For example, a fund may concentrate half of its assets in two or three positions, offering less diversification than other funds with broader asset distribution. ## The Bottom Line Exchange-traded funds represent a cost-effective way to gain exposure to a broad basket of securities with a limited budget. Investors can build a portfolio that holds one or many ETFs. Instead of buying individual stocks, [investors buy shares of a fund](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) that targets a representative cross-section of the wider market. However, there can be additional expenses to keep in mind when investing in an ETF. Get personalized, AI-powered answers built on 27+ years of trusted expertise. ASK Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https://www.investopedia.com/legal-4768893#EditorialPolicy) 1. State Street Global Advisors SPDR. “[SPY: The Original S\&P 500 ETF](https://www.ssga.com/us/en/intermediary/etfs/capabilities/spdr-core-equity-etfs/spy-sp-500).” 2. U.S. Securities and Exchange Commission. “[Investor Bulletin: Exchange-Traded Funds](https://www.sec.gov/investor/alerts/etfs.pdf).” 3. U.S. Government. “[Investment Company Act of 1940](https://www.govinfo.gov/content/pkg/COMPS-1879/pdf/COMPS-1879.pdf).” 4. Vanguard. "[Vanguard Consumer Staples ETF (VDC)](https://investor.vanguard.com/investment-products/etfs/profile/vdc#portfolio-composition)." 5. MSCI. "[MSCI US IMI Consumer Staples 25/50 Index (USD)](https://www.msci.com/documents/10199/eba103d2-41f1-4efc-a346-c9aa1c316a88)." 6. Fidelity. “[Bond ETFs in Focus](https://www.fidelity.com/viewpoints/active-investor/bond-etfs).” 7. Blackrock. "[iShares U.S. Technology ETF](https://www.blackrock.com/us/individual/products/239522/ishares-us-technology-etf)." 8. U.S. Securities and Exchange Commission. “[Statement on the Approval of Spot Bitcoin Exchange-Traded Products](https://www.sec.gov/newsroom/speeches-statements/gensler-statement-spot-bitcoin-011023).” 9. Commodities Futures Trading Commission. "[What Is a Bitocin Futures ETF?](https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/BitcoinFuturesETF.html)" 10. U.S. Securities and Exchange Commission. “[Release No. 34-100224](https://www.sec.gov/files/rules/sro/nysearca/2024/34-100224.pdf),” Page 1. 11. ETF Database. "[ETF Screener](https://etfdb.com/screener/#page=1&tab=returns&sort_by=fifty_two_week&sort_direction=desc&asset_class=equity&sectors=Gold%20Miners&inverse=false&assets_start=50)." 12. Wealthfront. “[Home Page](https://www.wealthfront.com/?utm_source=google&utm_medium=brand-search&utm_campaign=brand_exact-wf_ps-b_aw_all_dr_brand_20210825&cparam_campaignid=2061931427&utm_term=wealthfront&utm_content=null&cparam_contentid=781541991745&cparam_adgroup=null&cparam_adgroupid=76855954235&cparam_device=a&cparam_matchtype=e&campaignid=2061931427&adgroupid=76855954235&adid=781541991745&gad_source=1&gad_campaignid=2061931427&gbraid=0AAAAADl0KgwZ0mERg_OAViQZVryImJ588&gclid=CjwKCAiAraXJBhBJEiwAjz7MZei0qCI_xVIt99VPCHsu2rV3MYL3CCE3RhVU397aDK5BLI5lKspJNxoCxIoQAvD_BwE).” 13. Betterment. “[Home Page](https://www.betterment.com/investing?&&&&gclsrc=aw.ds&gad_source=1&gad_campaignid=189797745&gbraid=0AAAAADn17yefk9BVdUf_pd_2aGU1h6Mki&gclid=CjwKCAiAraXJBhBJEiwAjz7MZRS2Ye_rnoJYBJGLXcvWZGCPGgm7hCkWF1Xzr3PPxVdHpaSf_wmb_RoCmJQQAvD_BwE).” 14. Blackrock. "[iShares U.S. Technology ETF](https://www.blackrock.com/us/individual/products/239522/ishares-us-technology-etf)." 15. Invesco. “[About QQQ](https://www.invesco.com/qqq-etf/en/about.html?utm_campaign=INV_QQQ_2025_Google_Search_US_CoreQQQ_Brand_x_Prospecting_1869113&utm_source=Google&utm_medium=cpc&utm_content=qqq-cpc-paid-text&utm_term=21747614533_167110092719&gclsrc=aw.ds&gad_source=1&gad_campaignid=21747614533&gbraid=0AAAAABqAFo99ulic-U2Jnc9ugBVadrjb-&gclid=CjwKCAiAraXJBhBJEiwAjz7MZYSCFUaMa3dlpENUqOoxdZkpaOfvYmBAV7Dk0K3lRTRqNKa9v58c6hoCA1EQAvD_BwE).” 16. State Street. ”[DIA](https://www.ssga.com/us/en/individual/capabilities/spdr-core-equity-etfs/dia-djia?WT.mc_id=ps_etf-dia_dia-funds_us_google_text_psb_mf2_lp_may25&gclsrc=aw.ds&gad_source=1&gad_campaignid=10941827254&gbraid=0AAAAACz5AuMHaAPXtTpzF6F-LVLjRXsQp&gclid=CjwKCAiAraXJBhBJEiwAjz7MZU-MYNtYcxaH_7xXwL1scgtJ4ngHfy47bzW6miUjCZ_SV8Z-5W64YhoC6uoQAvD_BwE).” 17. Internal Revenue Service. “[Topic No. 409, Capital Gains and Losses](https://www.irs.gov/taxtopics/tc409).” 18. London Stock Exchange. "[Exchange Traded Funds](https://www.londonstockexchange.com/raise-finance/etps/etfs)." 19. UK Government. "[ISAs](https://www.gov.uk/individual-savings-accounts)." 20. UK Government. "[Tax When You Buy Shares](https://www.gov.uk/tax-buy-shares)." 21. European Parliament. “[Restricted Access to US ETFs for Ordinary EU Retail Investors](https://www.europarl.europa.eu/doceo/document/E-9-2021-004745_EN.html).” 22. UCITS ETFs. “[UCITS ETFs by Issuer](https://www.ucits-etfs.com/).” 23. HSBC. “[HSBC FTSE 100 UCITS ETF](https://www.assetmanagement.hsbc.co.uk/en/institutional-investor/funds/ie00b42tw061).” 24. Yahoo! Finance. “[HSBC FTSE 100 UCITS ETF (HUKX.L)](https://finance.yahoo.com/quote/HUKX.L/profile/).” 25. S\&P Dow Jones Indices. “[Reflecting on 25 Years of the S\&P/TSX Index Series and Its Impact on the Canadian Investment Industry](https://www.spglobal.com/spdji/en/documents/education/education-reflecting-on-25-years-of-the-sp-tsx-index-series.pdf),” Page 1. Ready to Take the Next Step? Advertiser Disclosure × The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Part of the Series Exchange-Traded Fund Guide for Beginners [Exchange-Traded Fund (ETF): What It Is and How to Invest](https://www.investopedia.com/terms/e/etf.asp) CURRENT ARTICLE ETF Basics 1. [7 Best ETF Trading Strategies for Beginners](https://www.investopedia.com/articles/investing/090115/7-best-etf-trading-strategies-beginners.asp) 2. [Introduction to Exchange-Traded Funds (ETFs)](https://www.investopedia.com/articles/01/082901.asp) 3. [7 Easy-to-Understand ETFs to Replace A Savings Account](https://www.investopedia.com/financial-edge/0113/7-easy-to-understand-etfs-to-replace-a-savings-account.aspx) 4. [Brief History of ETFs](https://www.investopedia.com/articles/exchangetradedfunds/12/brief-history-exchange-traded-funds.asp) 5. [ETFs Open Secret as a Tax Loophole](https://www.investopedia.com/news/etf-open-secret-theyre-tax-loophole/) 6. [ETF Market Price vs. ETF Net Asset Value: What's the Difference?](https://www.investopedia.com/ask/answers/052815/what-difference-between-etfs-net-asset-value-nav-and-its-market-price.asp) 7. [Going Green With Exchange-Traded Funds (ETFs)](https://www.investopedia.com/articles/exchangetradedfunds/11/going-green-with-etfs.asp) 8. [How Are ETF Fees Deducted?](https://www.investopedia.com/ask/answers/071816/how-are-etf-fees-deducted.asp) 9. [How are ETFs Taxed?](https://www.investopedia.com/articles/exchangetradedfunds/08/etf-taxes-introduction.asp) Pros and Cons 1. [ETFs Can Be Safe Investments If Used Correctly](https://www.investopedia.com/articles/investing/020916/etfs-can-be-safe-investments-if-used-correctly.asp) 2. [Advantages and Disadvantages of ETFs](https://www.investopedia.com/articles/exchangetradedfunds/11/advantages-disadvantages-etfs.asp) 3. [Advantages of Exchange-Traded Funds (ETFs)](https://www.investopedia.com/ask/answers/09/etfs-vs-mutual-funds.asp) 4. [Why ETF Investing Is Ideal for Young Investors](https://www.investopedia.com/articles/younginvestors/09/etfs-ideal.asp) 5. [What Are the Biggest Risks When Investing in ETFs?](https://www.investopedia.com/articles/etfs-mutual-funds/061416/biggest-etf-risks.asp) Investing in ETFs 1. [How To Pick the Best ETF](https://www.investopedia.com/articles/exchangetradedfunds/08/etf-choose-best.asp) 2. [New Ways to Buy ETFs Online](https://www.investopedia.com/articles/etfs/071716/buying-etfs-online-easy-heres-how.asp) 3. [Dollar-Cost Averaging With ETFs](https://www.investopedia.com/articles/mutualfund/05/etfdollarcost.asp) 4. [Are ETFs a Good Fit for 401(k) Plans?](https://www.investopedia.com/articles/financial-advisors/101315/are-etfs-good-fit-401k-plans.asp) 5. [Exchange Traded Notes: An Alternative to ETFs](https://www.investopedia.com/investing/etfs-vs-etns/) 6. [Exchange Traded Product (ETP): Definition, Types, and Example](https://www.investopedia.com/terms/e/exchange-traded-products-etp.asp) 7. [Index Fund vs. ETF: What's the Difference?](https://www.investopedia.com/ask/answers/033015/whats-difference-between-index-fund-and-etf.asp) ETFs and Mutual Funds 1. [Mutual Fund vs. ETF: What's the Difference?](https://www.investopedia.com/articles/exchangetradedfunds/08/etf-mutual-fund-difference.asp) 2. [ETFs vs. Mutual Funds: Which Is Better for Young Investors?](https://www.investopedia.com/articles/investing/021916/etfs-vs-mutual-funds-which-better-young-investors.asp) 3. 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Readable Markdown	### Key Takeaways - An [exchange-traded fund](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) is a basket of securities that trades on an exchange, just like a stock. - ETF share prices fluctuate throughout the trading day, unlike mutual funds, which only trade once a day after the market closes. - ETFs offer low expense ratios and fewer brokerage commissions than buying stocks individually. Get personalized, AI-powered answers built on 27+ years of trusted expertise. An exchange-traded fund (ETF) is an investment fund that holds multiple underlying assets. It can be bought and sold on an exchange, much like an individual stock. ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of stocks—even specific investment strategies. [Various ETFs are available to investors](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) for income generation, speculation, or hedging risk in a portfolio. The first ETF in the U.S. was the SPDR S\&P 500 ETF ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=spy)), which tracks the S\&P 500 Index.1 Exchange-traded funds are a simple, affordable, and easy way to invest, helping you diversify your portfolio in a low-cost way. Investopedia / Zoe Hansen ## How ETFs Work In the U.S., ETFs must be registered with the Securities and Exchange Commission (SEC).2 Most ETFs are set up as [open-ended funds](https://www.investopedia.com/terms/o/open-endfund.asp) and are subject to the [Investment Company Act of 1940](https://www.investopedia.com/terms/i/investmentcompanyact.asp), except where the rules modify their regulatory requirements.3 Open-ended funds do not limit the number of investors involved in the product. Vanguard's Consumer Staples ETF ([VDC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VDC)) tracks the MSCI US Investable Market Consumer Staples 25/50 Index and has a minimum investment of \$1.00.4 The fund holds shares of all 105 companies on the index, some more familiar than others because they produce or sell consumer items. A few of the companies held by VDC are Procter & Gamble, Costco, Coca-Cola, Walmart, and PepsiCo.5 There is no transfer of ownership because investors buy a share of the fund, which owns the shares of the underlying companies. Unlike mutual funds, ETF share prices are determined throughout the day. A mutual fund trades only once a day after the markets close. ### Important Volatility is limited with an ETF because its holdings are diversified across various assets. Industry ETFs are also used to rotate in and out of sectors during [economic cycles](https://www.investopedia.com/terms/e/economic-cycle.asp). ## Types of ETFs [Online brokers](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) may allow you to invest in a wide variety of ETFs, including the following. - Passive ETFs: [Passive ETFs](https://www.investopedia.com/terms/p/passive-etf.asp) aim to replicate the performance of a broader index—either a diversified index such as the S\&P 500 or a more targeted sector or trend. - Actively managed ETFs: These ETFs don't target an index. Instead, portfolio managers make decisions about which securities to buy and sell. [Actively managed ETFs](https://www.investopedia.com/terms/a/activemanagement.asp) offer benefits over passive ETFs, but they charge higher fees. - Bond ETFs: Used to provide regular income to investors. Distribution depends on the performance of underlying bonds, which may include government, corporate, and state and local bonds, usually called [municipal bonds](https://www.investopedia.com/terms/m/municipalbond.asp). Unlike their underlying instruments, [bondETFs](https://www.investopedia.com/terms/b/bond-etf.asp) do not have a maturity date.6 - Industry or [sector ETFs](https://www.investopedia.com/terms/s/sector-etf.asp): A basket of stocks that track a single industry or sector, like automotive or energy. The aim is to provide diversified exposure to a single industry, one that includes high performers and new entrants with growth potential. BlackRock's iShares U.S. Technology ETF ([IYW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IYW)), for example, tracks the Russell 1000 Technology RIC 22.5/45 Capped Index.7 - Commodity ETFs: Invest in [commodities](https://www.investopedia.com/terms/c/commodity.asp) like crude oil or gold. [Commodity ETFs](https://www.investopedia.com/terms/c/commodity-etf.asp) can diversify a portfolio. Holding shares in a commodity ETF is less expensive than owning the physical commodity. - [Currency ETFs](https://www.investopedia.com/terms/c/currency-etf.asp): Track the performance of currency pairs and can be used to speculate on the exchange rates of currencies based on political and economic developments in a country. Some use them to diversify a portfolio, while importers and exporters use them to hedge against [volatility](https://www.investopedia.com/terms/v/volatility.asp) in currency markets. - Bitcoin ETFs: The [spot Bitcoin ETF](https://www.investopedia.com/spot-bitcoin-etfs-8358373) was approved by the [SEC in 2024](https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670).8 These ETFs expose investors to Bitcoin's price moves in their regular brokerage accounts by purchasing and holding Bitcoin as the underlying asset. [Bitcoin futures ETFs](https://www.investopedia.com/investing/bitcoin-etfs-explained/), approved in 2021, use futures contracts traded on the Chicago Mercantile Exchange and track the price movements of bitcoin futures contracts.9 - Ethereum ETFs: [Spot Ether ETFs](https://www.investopedia.com/understanding-spot-ethereum-etfs-8622726) provide a way to invest in [Ether](https://www.investopedia.com/terms/e/ether-cryptocurrency.asp), the native currency of the Ethereum blockchain, without directly owning the cryptocurrency. In May 2024, the SEC allowed Nasdaq, the Chicago Board Options Exchange, and the NYSE to list ETFs holding Ether.10 In [July 2024](https://www.investopedia.com/spot-ether-etfs-start-trading-today-here-s-what-you-need-to-know-8680846), the SEC officially approved nine spot Ether ETFs to begin trading on U.S. exchanges. - Inverse ETFs: Earn gains from stock declines without having to [short stocks](https://www.investopedia.com/terms/s/shortselling.asp). An inverse ETF uses [derivatives](https://www.investopedia.com/terms/d/derivative.asp) to short a stock. Inverse ETFs are [exchange-traded notes (ETNs)](https://www.investopedia.com/terms/e/etn.asp) and not true ETFs. An ETN is a bond that trades like a stock and is backed by an issuer such as a bank. - Leveraged ETFs: A [leveraged ETF](https://www.investopedia.com/terms/l/leveraged-etf.asp) seeks to return some multiples (e.g., 2× or 3×) on the return of the underlying investments. If the S\&P 500 rises 1%, a 2× leveraged S\&P 500 ETF will return 2% (and if the index falls by 1%, the ETF would lose 2%). These products use debt and derivatives, such as options or futures contracts, to leverage their returns. ### Fast Fact There are three ETFs focused on gold mining companies, excluding inverse and leveraged ETFs and those with relatively low [assets under management (AUM)](https://www.investopedia.com/terms/a/aum.asp).11 ## Pros and Cons of ETFs Pros - Exposure to many stocks across various industries - Low expense ratios and commissions - Risk management through diversification - Can focus on targeted industries or commodities Cons - Actively managed ETFs have higher fees - Single-industry-focused ETFs limit diversification - Lack of liquidity hinders transactions ## How to Invest in ETFs ETFs trade through [online brokers](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) and traditional [broker-dealers](https://www.investopedia.com/terms/b/broker-dealer.asp). Individuals can also purchase ETFs in their retirement accounts. An alternative to standard brokers is a [robo-advisor](https://www.investopedia.com/the-best-robo-advisors-8764849) like Betterment and [Wealthfront](https://www.investopedia.com/wealthfront-review-4587933).1213 An ETF’s [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp) is the cost to operate and manage the fund. ETFs typically have low expenses because they track an index. ETFs are available on most online investing platforms and retirement account provider sites, along with investing apps like Robinhood. Most of these platforms offer commission-free trading, meaning that investors don’t have to pay fees to the platform providers to buy or sell ETFs. After creating and funding a brokerage account, investors can search for ETFs and buy and sell as desired. One of the best ways to narrow ETF options is to utilize an ETF screening tool with criteria such as trading volume, expense ratio, past performance, holdings, and commission costs. ## Popular ETFs Below are some [popular ETFs](https://www.investopedia.com/the-best-etfs-8781418). Some ETFs track an index of stocks, thus creating a broad portfolio, while others target specific industries. - SPDR S\&P 500 (SPY): The oldest and most widely known ETF tracks the S\&P 500.1 - iShares Russell 2000 ([IWM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IWM)): An ETF that tracks the Russell 2000 small-cap index.14 - [Invesco QQQ](https://www.investopedia.com/ask/answers/061715/what-qqq-etf.asp) ([QQQ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QQQ)): Known as "cubes," it tracks the tech-heavy Nasdaq 100 Index.15 - SPDR Dow Jones Industrial Average ([DIA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DIA)): Known as "diamonds," it tracks the 30 stocks of the [Dow Jones Industrial Average (DJIA)](https://www.investopedia.com/terms/d/djia.asp).16 - Sector ETFs: ETFs that track individual industries and sectors such as oil ([OIH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=OIH)), energy ([XLE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLE)), financial services ([XLF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XLF)), real estate [investment trusts](https://www.investopedia.com/etf-vs-investment-trust-8386101) ([IYR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IYR)), and biotechnology ([BBH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BBH)). - Commodity ETFs: These ETFs track commodities, including gold ([GLD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GLD)), [silver](https://www.investopedia.com/articles/investing/122215/slv-ishares-silver-trust-etf.asp) ([SLV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SLV)), crude oil ([USO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=USO)), and natural gas ([UNG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=UNG)). - Country ETFs: Funds that track the primary stock indexes in foreign countries but are traded in the U.S. in dollars. Examples include China ([MCHI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MCHI)), Brazil ([EWZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWZ)), Japan ([EWJ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EWJ)), and Israel ([EIS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EIS)). Others track foreign markets across multiple countries, such as emerging market economies ([EEM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EEM)) and developed market economies ([EFA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=EFA)). ## ETFs vs. Mutual Funds vs. Stocks Most stocks, ETFs, and mutual funds can be bought and sold without a commission. Funds and ETFs differ from stocks because some of them charge management fees, though fees have been trending lower for years. ETFs tend to have lower fees than mutual funds. \| \| \| \| \| \|---\|---\|---\|---\| \| \| Exchange-Traded Funds \| Mutual Funds \| Stocks \| \| What They Are \| Track a basket of securities or commodities. \| Pooled investments into bonds, securities, and other instruments. \| Shares in listed companies. \| \| Prices \| Can trade at a premium or at a loss to the net asset value (NAV) of the fund. \| Trade at the net asset value of the overall fund. \| Based on their actual performance in the markets. \| \| How They're Traded \| Traded during regular market hours, just like stocks. \| Can be bought and sold only at the end of a trading day. \| Traded during regular market hours. \| \| Fees \| Can be purchased commission-free and are generally cheaper than mutual funds. \| Some do not charge load fees, but most are more expensive than ETFs because they charge management fees. \| Can be purchased commission-free on some platforms and generally do not have charges associated with them after purchase. \| \| Ownership of Securities \| ETFs do not involve actual ownership of securities by retail investors. \| Mutual funds own the securities in their basket. \| Stocks involve ownership of the security. \| \| Risk \| Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and instruments. \| Diversify risk by creating a portfolio that can span multiple asset classes, sectors, industries, and security instruments. \| Risk is concentrated in a stock’s performance. Diversity can be achieved by buying other stocks. \| Active vs. Passive Equity Funds ## Dividends and Taxes ETF investors can also benefit from companies that pay [dividends](https://www.investopedia.com/terms/d/dividend.asp). Dividends are a portion of earnings allocated to investors. ETF shareholders are entitled to a share of earned interest or dividends and may get a residual value if the fund is [liquidated](https://www.investopedia.com/terms/l/liquidation.asp). An ETF is more tax-efficient than a mutual fund because most buying and selling occurs through an exchange, and the ETF sponsor doesn't need to redeem shares each time an investor wishes to sell shares of the ETF. Each time an investor sells their mutual fund shares, they sell them back to the fund and incur a tax liability that must be paid by the fund's shareholders.17 ## Creation and Redemption The supply of ETF shares is regulated through creation and redemption, which involves large specialized investors called [authorized participants (APs)](https://www.investopedia.com/terms/a/authorizedparticipant.asp). When an ETF manager wants to issue additional shares, the AP buys shares of the stocks from the index—such as the S\&P 500 tracked by the fund—and sells or exchanges them to the ETF for new ETF shares at an equal value. In turn, the AP sells the ETF shares in the market for a profit. When an AP sells stocks to the ETF sponsor in return for shares in the ETF, the block of shares used in the transaction is called a [creation unit](https://www.investopedia.com/terms/c/creationunit.asp). If an ETF closes with a share price of \$101 and the value of the stocks that the ETF owns is only worth \$100 on a per-share basis, then the fund’s price of \$101 was traded at a premium to the fund’s [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp). The NAV is an accounting mechanism that determines the overall value of the assets or stocks in an ETF. An AP also buys shares of the ETF on the open market. The AP then sells these shares back to the ETF sponsor in exchange for individual stock shares that the AP can sell on the open market. As a result, the number of ETF shares is reduced through the process called [redemption](https://www.investopedia.com/terms/r/redemption-mechanism.asp). The amount of redemption and creation activity is a function of demand in the market and whether the ETF is trading at a discount or a premium to the value of the fund’s assets. ## ETFs in the United Kingdom The U.K. ETF market is one of the largest and most diverse in Europe. ETFs listed on the [London Stock Exchange (LSE)](https://www.investopedia.com/terms/l/lse.asp) offer exposure to various asset classes and markets, including equities, fixed income, commodities, currencies, [real estate](https://www.investopedia.com/the-best-real-estate-crowdfunding-sites-8761523), and alternative investments.18 Buying [ETFs in the U.K.](https://www.investopedia.com/uk-etfs-how-they-work-8549739) allows inclusion in Individual Savings Accounts (ISAs), which are tax-efficient savings vehicles that allow people to invest up to £20,000 per year without paying any income or capital gains tax on their returns.19 Another benefit is that ETFs attract no stamp duty, which is a tax levied on ordinary share transactions in the U.K.20 Investors can buy shares in U.S.-listed companies from the U.K., but regulations prohibit the purchase of U.S.-listed ETFs in the U.K.21 Some U.K.-based ETFs track U.S. markets and have UCITS (Undertakings for the Collective Investment in Transferable Securities) in their names. This means the fund is fully regulated in the U.K. and allowed to track U.S. investments.22 Several ETFs track the [FTSE 100](https://www.investopedia.com/terms/f/ftse.asp) index for broad exposure to U.K. equities. These consist of the 100 largest publicly listed companies in the country. The HSBC FTSE UCITS ETF is listed on the London Stock Exchange and trades under the ticker symbol HUKX.23 The ETF has an ongoing charge of 0.07% and a dividend yield of 3.16% as of November 2025.24 ## Frequently Asked Questions (FAQs) ## What Was the First Exchange-Traded Fund? The distinction of being the first exchange-traded fund is often given to the SPDR S\&P 500 ETF (SPY), launched by State Street Global Advisors on Jan. 22, 1993.1 There were, however, some precursors to SPY, including Index Participation Units listed on the [Toronto Stock Exchange (TSX)](https://www.investopedia.com/terms/t/toronto-stock-exchange-tsx.asp), which tracked the Toronto 35 Index and appeared in 1990.25 ## How Is an ETF Different From an Index Fund? An index fund usually refers to a mutual fund that tracks an index. An index ETF is constructed in much the same way and will hold the stocks of an index. However, the [difference between an index fund and an ETF](https://www.investopedia.com/ask/answers/033015/whats-difference-between-index-fund-and-etf.asp) is that an ETF tends to be more cost-effective and liquid than an index mutual fund. You can also buy an ETF throughout the trading day, while a mutual fund trades via a broker after the close of each trading day. ## Do ETFs Provide Diversification? Nearly all ETFs provide [diversification](https://www.investopedia.com/articles/investing/030116/portfolio-diversification-done-right.asp) relative to individual stock purchases. Still, some ETFs are highly concentrated—either in the number of different securities they hold or in the weighting of those securities. For example, a fund may concentrate half of its assets in two or three positions, offering less diversification than other funds with broader asset distribution. ## The Bottom Line Exchange-traded funds represent a cost-effective way to gain exposure to a broad basket of securities with a limited budget. Investors can build a portfolio that holds one or many ETFs. Instead of buying individual stocks, [investors buy shares of a fund](https://www.investopedia.com/the-best-brokers-for-etfs-8763336) that targets a representative cross-section of the wider market. However, there can be additional expenses to keep in mind when investing in an ETF.
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