What is an ETF & how does it work?

An ETF is an exchange-traded index fund that tracks the performance of well-known market indices one-to-one. How do ETFs work? What is a fund? What is an index fund? What does exchange-traded mean? Why have I never heard of ETFs before?

What is an exchange-traded fund (ETF)?

(May 2023) ( Learn how and when to remove this template message) An exchange-traded fund ( ETF) is a type of investment fund that is also an exchange-traded product, i.e., it is traded on stock exchanges. ETFs own financial assets such as stocks, bonds, currencies, debts, futures contracts, and/or commodities such as gold bars.

What is the difference between a REIT and an ETF?

The individual performance of REITs can vary widely. Many REITs are traded on major stock exchanges, but there are also a number of private and non-publicly traded REITs. REIT exchange traded funds (ETFs), on the other hand, invest their assets primarily in equity REIT securities and other derivatives.

What is an ETF provider?

An ETF provider creates an ETF based on a particular methodology and sells shares of that fund to investors. The provider buys and sells the constituent securities of the ETF's portfolio. While investors do not own the underlying assets, they may still be eligible for dividend payments, reinvestments, and other benefits.