What Is An Exchange Traded Fund (ETF)

An Exchange Traded Fund, or ETF, is a synthetic asset which is designed to track the price of an index or commodity. ETFs can be bought and sold on a stock market like any other asset, even though it may be impossible to actually buy the asset they are based on.

ETFs can track an index by essentially being a portfolio holding the exact same stocks that make up the index in the exact same proportions, thereby mirroring the index.

Some common ETFs are based on the major global financial indices (S&P500, FTSE etc.) or on popular commodities such as gold. The most well known is called the Spider and this tracks the S&P500.

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