What Is ETF (Exchange-Traded Fund)?
A basket of securities that trades on an exchange like a single stock.
The Full Definition
An ETF is a collection of stocks, bonds, or other assets bundled together and traded on a stock exchange as a single security. You can buy and sell an ETF throughout the trading day, just like a stock. ETFs offer instant diversification — owning one share of SPY gives you exposure to all 500 companies in the S&P 500. Most ETFs are passively managed index trackers with very low expense ratios, making them one of the most cost-efficient investment vehicles available to individual investors.
Real-World Example
QQQ tracks the Nasdaq-100, giving you exposure to the 100 largest non-financial companies on the Nasdaq in a single trade. VTI gives you the entire US stock market — over 4,000 companies — for 0.03% per year.