ETF stands for Exchange Traded Funds and they have been available since the 1990s.
ETFs are products that are traded on an exchange and give exposure to a variety of instruments such as stocks, bonds, commodities and indices. The ETF trades in a way that generally mirrors the underlying instrument.
The first ETF was S&P 500 index fund which began trading on AMEX in 1993. The purchase of this S&P500 ETF, now referred to as the SPY, enabled traders to capture market movements of the whole index without having to purchase the entire 500 stocks. This movement could be captured with the purchase, or sale, of one single and more cost effective ETF. Today there are hundreds of ETFs available on a wide range of items and market sectors.
ETFs are often attractive trading investments because of their:
- relatively low cost,
- stock-like features,
- trading transparency,
- buying and selling flexibility and
- ease in allowing broader market exposure and diversification. This is due mostly due to their low cost.
- potential to moderate risk: trading a stock index ETF means you are trading a basket of stocks and, thus, this reduces the risk due to any one individual stock.
The following is a list of some of the ETFs that I track and like to trade:
SPY: an ETF based on the S&P500 stock index.
DIA: an ETF based on the Dow Jones Industrial Average stock index.
QQQQ: an ETF based on the NASDAQ-100 stock index.
UNG: an ETF based on the US natural gas.
GLD: an ETF based on the gold miners index.
IWM: an ETF based on the Russell 2000 (small caps) stock index.