An exchange-traded fund (ETF) is a security that tracks an index of stocks or other assets, and which is traded on a stock exchange in the same manner as a share of common stock. An ETF owns assets and issues shares that are valued based on its ownership of those assets. Examples of the assets that an ETF may own include the following:
- Gold and silver
- Foreign currency
- Shares of stock for specific indexes or industry sectors
- Oil and natural gas
Since ETF shares trade like common stock, investors can use this vehicle to buy on margin, sell short, or simply own a basket of assets that might otherwise be difficult to assemble. An ETF is highly liquid, so investors can easily buy and sell shares on a daily basis.