Exchange Traded Fund (ETF), Definition
An ETF is security that tracks an index and represents a basket of stocks like an index fund, but trades like a stock on an exchange, with daily price fluctuations. They trade principally the American Stock Exchange, but also the NYSE, CBOE, and Nasdaq. The most widely known ETFs are SPDR (Spider), which tracks the S&P 500 index, and QQQ, which tracks the Nasdaq-100 Index .
An ETF does not have its net asset value (NAV) calculated every day like a mutual fund, as their prices changes daily, being traded like a regular stock. ETF's provide the diversification of an index fund as well as the ability to sell short, buy on margin and lower expense ratios than the average mutual fund. The commission on ETF's are the same as for regular stocks.
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