Glossary · Defined term
ETF
An ETF is a basket of securities that trades on an exchange like a single stock, often tracking an index at low cost.
Last updated Oct 2, 2026
What it means
An exchange-traded fund is a basket of securities that trades on an exchange like a single stock, with its price moving throughout the day. Most ETFs track an index, sector, commodity, or theme, and large financial firms create and redeem ETF shares in bulk to keep the market price close to the value of the underlying holdings. That mechanism is why ETFs usually trade near their net asset value. ETFs typically charge a low annual expense ratio and let investors buy broad diversification in one trade. Unlike mutual funds, which price once daily, ETF orders execute at live market prices during trading hours.
An example
For illustration, an investor who wants exposure to 500 large U.S. companies can buy one share of an S&P 500 ETF instead of 500 separate stocks. If the index rises 1 percent that day, the ETF's price should rise roughly 1 percent minus its tiny fee. One trade delivers instant diversification.