ETF stands for Exchange Traded Fund. ETF`s are a type of financial security and ETF shares are traded mostly like stocks. ETF share`s price follows the movement of the assets that it is tracking. ETF`s are managed by financial institutions and professionals are choosing which stocks to include in the fund. For example, an ETF called “SPDR S&P 500 ETF Trust” (Ticker: SPY) is tracking the price movement of S&P 500 index, meaning that if you buy 1 share of SPY ETF, which costs around 360$ at the time of writhing this article, you are investing in all of 500 Large-Cap Companies in US, including Apple, Microsoft, Amazon, Facebook, Alphabet (Google) … etc.
Cool thing about ETF is that it allows you to diversify without investing hundreds of thousands of dollars. If you are investing only in one or few companies, you are taking higher risks and you could lose big portion of your investment. By investing in ETF funds you are minimizing your risks by diversification and ETF`s still have high upside potential.
There are many types of ETF funds. Some of them include stocks from whole stock market like SPY that we mentioned before, however there are ETF funds that track Technology Sector, Healthcare Sector, Internet Companies, International and emerging markets and even bonds. If you are interested in most traded and most popular ETFs here is an article about top 5 ETFs that we think have huge potential for investors.
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