What are exchange-traded funds (ETFs)?

Exchange-traded funds, often abbreviated as ETFs, are listed securities that track indexes that consist of a portfolio of individual securities. They are similar to mutual funds but, like stocks, trade on stock exchanges during the day.

An ETF is a type of investment product that pools money from many investors and invests it according to the fund’s stated objective. ETFs usually invest in a large portfolio of securities, providing an investor with instant diversification when they purchase shares.

An ETF can be active. This means securities in the fund buy and sell at the fund manager’s discretion. However, it can also be passive, meaning the fund seeks to replicate the performance of an already -established benchmark, such as a stock or bond index.

ETFs look, feel and trade like stocks. And like a stock, an ETF sees its price change throughout the day. You can buy and sell ETFs in your brokerage account at the click of a mouse. And today, at most brokerages, you can invest in ETFs for free. Learn more here.