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How do ETFs work?

Curious about ETFs

How do ETFs work?

ETFs or ExchangeTraded Funds are investment funds that trade on stock exchanges like individual stocks. They hold a basket of assets like stocks, bonds, or commodities, and allow investors to buy or sell shares in the fund throughout the trading day at market prices.

ETFs are designed to track a particular market index, such as the S&P 500 or NASDAQ, or a specific sector or asset class. The ETF manager will purchase the underlying securities in the same proportion as the index it is tracking, and then issue shares of the ETF to investors in exchange for cash.

The price of an ETF share fluctuates throughout the trading day based on market demand and supply, just like the price of a stock. This allows investors to gain exposure to a diversified portfolio of assets with low fees and flexibility in trading, compared to traditional mutual funds.

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