ETF
A basket of securities that trades on an exchange like a single stock. ETFs give instant diversified exposure to an index, sector, or theme.
An exchange-traded fund (ETF) is a pooled investment vehicle that holds a collection of securities — stocks, bonds, commodities, or a mix — and issues shares that trade continuously on an exchange throughout the day.
Most ETFs passively track an index (SPY tracks the S&P 500, QQQ tracks the Nasdaq-100). Others are actively managed, sector-specific, or use leverage. The key advantages over mutual funds: real-time pricing, lower fees, and no minimum investment.
An authorized participant mechanism keeps the ETF price close to its net asset value (NAV) through creation and redemption of share baskets. Large price deviations are arbitraged away quickly, unlike closed-end funds.
On the desk
SPY (SPDR S&P 500 ETF) holds all 500 S&P 500 stocks in their index weights. Buying one SPY share gives you proportional exposure to all 500 companies. At $500/share, it is far easier than buying each individually.