investment fund traded on stock exchanges
An exchange-traded fund (ETF) is a type of investment fund that is also an exchange-traded product; i.e., it is bought and sold on stock exchanges. ETFs own financial assets such as stocks, bonds, currencies, cryptocurrency, debt, futures contracts, and/or commodities such as gold bars. ETFs provide more diversification than owning an individual stock and more market liquidity than owning an individual bond.
Most equity and fixed-income ETFs are index funds; they use passive management to replicate the performance of a stock market index or bond market index. These indices can be broad-based, such as the S&P 500 or focus on a certain industry such as the technology industry or the financial industry, a certain quality such as growth stocks or value stocks, a certain market capitalization, a certain factor such as high dividend stocks or value, momentum, quality, and low volatility, or a certain theme such as climate change, cloud computing, robotics, electric vehicles, the gig economy, e-commerce, or renewable energy. Other ETFs use active management, either by picking stocks or by the use of covered call strategies to generate income. For ETFs that invest in bonds, some will focus on government bonds, while others invest in corporate bonds or high-yield debt or focus on specific durations. Some ETFs use buffer strategies to reduce both risk and reward.
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