An exchange-traded fund (ETF) holds a basket of underlying assets — most commonly the stocks that make up an index — and itself trades on an exchange like an ordinary share. Buying one share of the fund gives an investor proportional exposure to everything the fund holds, in a single transaction.
ETFs are prized for low cost and convenience. A broad index ETF charges a small annual fee, the expense ratio, and spreads money across hundreds of holdings, diversifying away the risk of any one company. They trade throughout the day at market prices, unlike traditional mutual funds that settle once daily.
Not every ETF is cheap or passive, though. Some track narrow themes or use leverage and complex strategies, carrying higher fees and risks. The label tells you the wrapper, not the risk — always check what an ETF actually holds.
Worked example
An S&P 500 ETF gives an investor exposure to 500 large US companies through one purchase, often for an annual fee under 0.1%.
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This definition is general education, not investment advice. Markets — especially crypto — are volatile and you can lose money. Please read our disclaimer and see our methodology.