What are ETFs and how do they work?

ETFs, or exchangetraded funds, are a type of investment fund that trades on stock exchanges like individual stocks. They are similar to mutual funds, but with some key differences. ETFs are typically designed to track a particular market index, such as the S&P 500, and their value is determined by the performance of the underlying assets they hold.

ETFs are created and managed by financial institutions, who buy and hold a basket of assets (such as stocks or bonds) that reflect the composition of the index they are designed to track. They then issue shares of the ETF, which can be bought and sold on a stock exchange by investors.

Because ETFs trade on an exchange, they offer more flexibility than traditional mutual funds. They can be bought and sold at any time during market hours, and investors can use various types of orders, including limit orders and stoploss orders, to manage their positions.

ETFs also offer investors the ability to gain exposure to a wide range of markets and asset classes with a single investment. This can help to diversify an investment portfolio and reduce overall risk. Additionally, ETFs generally have lower fees than mutual funds, making them an attractive option for costconscious investors.