Glossary
What Is an ETF (Exchange-Traded Fund)? Definition and Example
An ETF, or exchange-traded fund, is a fund that holds a basket of investments, such as shares, and trades on a stock exchange like a single share.
What it means
Many ETFs track an index, for example the S&P 500, so one purchase spreads your money across many companies. Costs are shown as an expense ratio. ETFs differ in what they hold, how big they are and how closely they follow their index, so compare these before you choose.
Example
Buying one S&P 500 ETF gives you a small stake in roughly 500 large US companies.
Why it matters
ETFs are a common low-cost way to diversify, but they still carry market risk and can fall in value.
Related terms
- Index Fund: An index fund is a fund designed to match the performance of a market index, such as the S&P 500, by holding.
- Expense Ratio: An expense ratio is the yearly fee a fund charges, shown as a percentage of the money invested. A 0.10% ratio.
- Portfolio Diversification: Portfolio diversification means spreading your money across different assets, sectors and regions so that one.
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Frequently asked questions
What is the difference between an ETF and an index fund?
Many ETFs are index funds. The difference is how they trade: an ETF trades on an exchange during the day.
Are ETFs safe?
They are not risk-free. Their value moves with the market they track.
Can I buy a US ETF from outside the US?
Often yes through a broker that offers it, but tax and rules differ. See our guide.