Exchange Traded Funds Key Terms

Learn the lexicon of exchange traded funds

Exchange traded funds are investment securities that can be traded as stocks. Yet, they behave like mutual funds in that they invest in a pool of securities. Exchange traded funds or ETFs closely follow an index, such as MSCI EAFE or S&P 500. These investment securities specialize in a sector. For example, if you want to invest in gold, purchase shares in an exchange traded fund that invests in gold companies. Investors like exchanged traded funds because they have lower operating costs and offer tax advantages and diversification.

 

Exchange traded funds

Exchange traded funds comprise a collection of securities based on individual sectors. Investors and traders are attracted to these funds because they don't cost as much to purchase as they do with stocks. Second, they like exchange traded funds because they can help save on taxes. You will find exchange traded funds that specialize in various sectors, such as real estate, international, or bonds.
Try: Visit Yahoo! Finance’s website to get comprehensive information on exchange traded funds.

Shares

Purchasing shares in an exchange traded fund means owning a part of the collection of the securities that make up this fund. In other words, you own a part of the fund. As a result, you will profit if the fund earns money. If the fund loses money, you will as well.
Try: Read Whiskey and Gunpowder to understand how shares work in exchange traded funds.

Trading

Trading involves buying and selling shares in exchange traded funds. You will have to go through a broker to execute these transactions.
Try: ETF Connect has an FAQs section that discusses trading in funds selling at a discount.

Commissions

Each time when you purchase or sell shares in exchange traded funds, you will have to pay a commission. A commission is a fee that the the broker charges you for executing a transaction.
Try: Path to Investing explains how a brokerage commission works when it comes to exchange traded funds.

iShares

iShares is regarded as one of the largest issuers of exchange traded funds for both global and domestic markets. Each fund closely follows either a stock or bond market index. You will find exchange traded funds, such as the Dow Jones Index or Barclays Aggregate Bond Fund.
Try: Go to iShares to get in-depth information on all of the exchange traded funds that it provides.

SPDR

SPDR is also another large and popular issuer of exchange traded funds. State Street Global Advisors manages these funds. SPDR is named after Standard & Poor's depository receipt, and tracks the Standard & Poor's 500 Index (S&P 500).
Try: Select Sector SPDR provides a comprehensive overview of SPDR exchange traded funds.

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