exchange-traded fund

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Exchange-Traded Fund

A security that represents all the stocks on a given exchange. For example, an exchange-traded fund may track the Standard and Poor's 500. The organization issuing the exchange-trade fund owns each of the stocks traded on the S&P 500 in approximate ratio to their market capitalization. ETF shares can be bought, sold, short-sold, traded on margin, and generally function as if they were stocks. Investors use exchange-traded funds as a way to easily diversify their portfolios at relatively low cost. See also: SPDR.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

exchange-traded fund (ETF)

A mutual fund whose shares trade on a securities exchange, generally at or very near net asset value per share. Unlike ordinary mutual funds that continually issue and redeem their own shares, exchange-traded funds are similar to closed-end investment companies whose shares trade among investors. The share price is maintained at or near net asset value because of the ability of large investors to convert ETF shares to the underlying stocks or to trade underlying stocks for shares of the ETF. See also creation unit.
Case Study The exchange-traded fund has become a very popular investment, in large part because of the low expenses and great flexibility. Annual expense ratios for ETFs are often lower than even the lowest-cost index funds. ETFs can be used either to buy or short the overall market or a specific segment of the market. These funds can also be used to hedge an investment position. For example, an investor holding a diversified portfolio of stocks can hedge an expected market decline by shorting shares of an exchange-traded fund that replicates the S&P 500. Investors with more specialized portfolios have the option of using other ETFs that track a more focused index. The market price of an ETF efficiently tracks a stock index because large investors are permitted to swap ETF shares (generally, 50,000 shares) for the underlying stocks that compose the index, and vice versa. If an ETF market price moves below its net asset value, investors will swap the ETF shares for shares of stock composing the ETF portfolio. Conversely, if an ETF market price moves above its net asset value, investors will swap shares of stock that underlie the index tracked by the ETF for shares of the ETF. The swapability of ETF shares for shares that compose the index keeps the market price of the exchange-traded fund near its net asset value.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Created and offered by Exchange Traded Concepts, PRID is designed to track the performance of the UBS LGBT Employment Equality Index (Ticker: UBSLGBTT).
There are only a few publications devoted to this category of financial products but in most of them ETCs are just mentioned as one type of ETPs (exchange traded products) without any further analysis.
Under the new contracts, stock brokers, domestic institutional investors, FPIs and clients, are allowed to take positions in the exchange traded cross-currency futures and option contracts.
* The number of exchange traded funds will more than double to 2,500 by 2017.
GoldETFTrading.com offers valuable insight for both investors and industry professionals by merging the fundamental and technical data relevant to both the gold market and the world of exchange traded funds (ETFs).
Citigroup, Inc (NYSE: C) has announced that it has hired a head for exchange traded derivatives sales.
The NEXT FUNDS NASDAQ-100 EXCHANGE TRADED FUND gives investors in Japan, which has the world's second largest economy, the ability to invest in 100 of the largest and most innovative global non-financial securities listed on NASDAQ including Apple, Intel, Google and Microsoft.
Complete Guide to Investing in Exchange Traded Funds
The seminar will be part of a nationwide road show designed to increase understanding and awareness of Exchange Traded Funds (ETFs), Exchange Traded Commodities (ETCs) and Covered Warrants, all of which have continued to enjoy strong growth in popularity in the UK.
Exchange Traded Funds (and iShares) are actually index funds that trade like individual stocks.
Using baskets of stocks, Exchange Traded Funds offer diversification and a cost-effective alternative to equity mutual funds.