Exchange-traded fund - What makes it a good investment

ETFs are passively managed, meaning the fund manager does not trade the underlying assets.

ETFs commonly track a market index or commodity. Those tracking an index are called index funds. However, there is a growing number of actively managed ETFs. An active fund manager tries to outperform a benchmark index by being more selective with their stock picks.

The shares of actively managed ETFs are traded on major stock exchanges throughout the day, unlike mutual funds, which only trade once a day, after markets close. In addition, they provide more transparency into their holdings than actively managed mutual funds.

ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.

ETFs are traded on exchanges just like stocks, and they can be bought and sold just like any other security.

An ETF, or exchange-traded fund, is an investment vehicle that pools money from investors and uses the funds to buy a basket of stocks, bonds, and other securities. Investors can buy and sell shares of an ETF just like they would buy shares of stock from a stock exchange such as the Nasdaq or the New York Stock Exchange, hence the name exchange-traded fund.

As stated earlier, ETFs, like stocks, are trading on the secondary market. When buying or selling ETFs and stocks, you can use a variety of order types, including market orders (an order to buy or sell at the next available price) or limit orders (an order to buy or sell shares at a maximum or minimum price you set). You can place stop loss orders and stop limit orders, as well as "immediate or cancel," "fill or kill," "all or none," "good 'til cancelled," and several other types of orders. You can also execute short sales.

ETFs can cost far less for an entry position—as little as the cost of one share, plus fees or commissions. An ETF is created or redeemed in large lots by institutional investors and the shares trade throughout the day between investors like a stock. Like a stock, ETFs can be sold short. Those provisions are important to traders and speculators, but of little interest to long-term investors. But because ETFs are priced continuously by the market, there is the potential for trading to take place at a price other than the true NAV, which may introduce the opportunity for arbitrage.