How does an ETF work?

An ETF, or exchangetraded fund, is a type of investment fund that is traded on stock exchanges like individual stocks. ETFs own a basket of underlying assets, such as stocks, bonds, or commodities, and the value of the ETF is derived from the collective value of those underlying assets.

When an investor buys an ETF, they are buying shares in a fund that holds a portfolio of underlying assets. The price of the ETF is determined by the market value of its underlying assets. As the value of the underlying assets in the ETF changes, the value of the ETF shares also changes.

ETFs are designed to be highly liquid, which means that they can be bought and sold throughout the trading day like individual stocks. This makes ETFs a popular investment vehicle for investors looking to gain exposure to a specific market or asset class, while also providing diversification and the ability to trade quickly and easily.