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What Are Etfs? Are Those Stocks?

Jun 13, 2008
Many people ask, what are Efts? Are they Stocks? The truth is that there is not a simple yes or no answer to this question. As a matter of fact, sometimes the answer is both. Confused? Let's try to clear it up.

Are Efts stock? The internet is full of free chart and quotes. These tools are often used and given that they generally apply, it is easy for one to expect since Efts behave like stocks, then they must be stocks.

ETFs are in fact exchange-traded funds. They're traded on markets like stocks, but aren't really stocks themselves. They're more like a mix of mutual funds and a closed-end fund, which in and of themselves aren't really considered to be "exchange traded."

Closed ended funds are traded on an exchange, but are not considered to be an exchange traded fund. They are bought and sold through the trading day at prices that do not reflect on the real value of the funds assets. However, mutual funds are bought and sold at the end of the trading day, based on that day trading results.

Again you ask, What Are Etfs? Are Those Stocks? Basically, Efts are funds that are made up of securities and other assets. They are structured quiet a bit like mutual funds, but they can be sold like stock. This is because they can be bought and sold throughout the day.

Unlike stocks, though, exchange traded funds can't be bought by the share by financial institutions. Rather they're bought in blocks of tens of thousands to hundreds of thousands of shares or "creation units." This bulk buying exists to limit variation between the actual value of the assets and the purchase price of the creation units.

Again you ask, What Are Etfs? Are Those Stocks? They are similar to stocks in some ways. You can short sell, put limit orders or sell options on them. They are for diversification of investments. They maintain tax efficiency and low expense ratios. It is possible to treat Efts like stock.

Finance can be confusing. It reading this has done nothing to clear it up for you; my advice would be not to invest in Efts yet. Make sure you understand the entire process of specialized investing prior to sinking your cash into it. It is always best to invest in something that you are comfortable and knowledgeable about.
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