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Stock Market ETF (Exchange Traded Fund)

A stock market ETF is are index funds or trusts that are listed on the stock exchange and can be traded just like any other stock.  They are setup by large investors who take blocks of the holdings investments and divides them into single shares.  These shares can be bought and sold intraday, bought on margin, sold short, have options contracts created on them, or held for the long term.  Unlike many mutual funds they don’t have front end loads, but stock broker commissions still apply.

What makes a stock market ETF different than a hedge fund is they must disclose every day their holdings.  Therefore you’re not investing in the management team of the firm, but the holdings of the index.  In most cases these holdings are not changing much and are predefined like the DOW stocks or the S&P 500. 

Exchange Traded Funds can also be found holding buckets of bonds, commodities, and currencies.

Why buy the stock market ETF versus just buying individual companies?  Sometimes you may have a better understanding of a sector or general market, but not necessarily know which company is going to be the winner in that sector.; or you just like the diversification with the added trading cost.  Own 100 different shares in 1 trade.  Also, most ETF’s have lower cost because they require less marketing and more tax efficiency since they are not “trading stocks”, but maintaining a bucket of stocks.

ETF’s are another great tool in the investor’s workshop.

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This entry was posted on Sunday, December 28th, 2008 at 9:00 am and is filed under Glossary. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

3 Responses to “Stock Market ETF (Exchange Traded Fund)”

  1. [...] market news by unknown « About day trading: Day Trading Stock Pick – How Do the Pros Find a [...]

  2. [...] unknown wrote an interesting post today onStock Market ETF (Exchange Traded Fund) | Learn The Stock Market …Here’s a quick excerptWhat makes a stock market ETF different than a hedge fund is they must disclose every day their holdings. Therefore you’re not investing in the management team of the firm, but the holdings of the index. In most cases these holdings are … [...]

  3. [...] find it useful to look at ETFs related to the sector and see how they are performing.  As long as they are remotely in line with [...]