What is ETF?

Exchange-Traded Funds, also known as ETFs are a securities that tracks a basket of assets (certain index, commodities, ...) and can be bought and sold throughout the day just like stocks on an stock exchange market.

What is the benefit of ETFs?

The main benefit is that ETFs behaves as any other security traded on stock exchange market, meaning that you can use limit orders, options, short selling, etc. Being traded as other securities, the price of an ETF can surmount the NAV (Net asset value). That means that an ETF tracking S&P 500 index can rise more than S&P 500 index on a certain day.

ETFs are transparent unlike mutual funds. You can always find out what securities are incorporated in ETFs which is not the case for mutual funds.

What types of ETFs exists?

• Index ETFs
  They are tracking performance of a certain index (for example S&P500, DJIA or Nasdaq100)
• Commodity ETFs
  They are tracking commodities such as gold, oil, etc.
• Actively managed funds
  They are tracking a certain mutual actively managed fund having obligation to be fully transparent (publishing their current securities portfolios on their web sites daily)

Today, index ETFs are the most commonly used. As of March 2008, there were 644 ETFs with $571 billion in assets in the U.S.