ETF
What is etf?
An ETF, or exchange-traded fund, is a basket of investments that trades on an exchange throughout the day like a single stock. Most track an index, but the label alone does not guarantee diversification or low cost.
- Written by
- Suggested Investments Research Team
- Content type
- Reference definition
- Published
- 2026-09-13
- Last reviewed
- 2026-09-13
How it differs from a mutual fund
An ETF can be bought and sold at any point during market hours at a live price, while a traditional mutual fund transacts once per day at its net asset value. That intraday tradability is convenient but also makes ETFs easier to trade impulsively.
Not every ETF is diversified or simple
Leveraged, inverse and narrow thematic ETFs use derivatives or hold a small number of positions, and some leveraged products reset daily in ways that make them unsuitable for long-term holding.
A worked example
A broad market ETF holding hundreds of companies behaves very differently from a leveraged ETF on a single sector, even though both trade under the same fund structure on the same exchange.
The mistake people make
Assuming the word 'ETF' implies diversification or low cost. Some of the narrowest, most expensive, most volatile products on the market are structured as ETFs.
How we use it
ETFs are covered in our study library as a portfolio-construction tool; individual-stock research and the Suggested Investment Score apply to companies, not to fund structures.
Related terms
Sources and methodology
- Investor.gov investor education — U.S. Securities and Exchange CommissionPrimary source
- Intelligent Accumulation methodology — Suggested InvestmentsPrimary source
Keep reading
- Investing Glossary
Every investing term we use, defined once and in plain English — from compounding and drawdown to Form 13F and share dilution.
- Compound interest
Compound interest is growth earned on both your original money and on the growth it has already produced. It is the reason long holding periods matter more th
- Dollar-cost averaging
Dollar-cost averaging means investing a fixed amount on a fixed schedule regardless of price. It removes the need to decide when to invest, and it buys more s
- Free cash flow
Free cash flow is the cash a business has left after paying the costs of running and maintaining itself. It is the cash that can fund dividends, buybacks, deb
- Expense ratio
An expense ratio is the annual percentage of your money a fund keeps to run itself. It is deducted from returns quietly, every year, whether the fund performs
- Maximum drawdown
Maximum drawdown is the largest peak-to-trough fall an investment has suffered over a period. It measures the worst stretch an investor would have had to sit
Educational information only. Nothing here is a recommendation to buy or sell any investment, and no research measurement removes the risk of loss.