ETF (exchange-traded fund)

Investing glossary · Markets and instruments

A fund holding a basket of securities that you can buy and sell on an exchange throughout the day, like a single stock.

Definition

An exchange-traded fund (ETF) is an investment fund whose shares trade on a stock exchange. It holds a basket of assets, such as the stocks of an index, bonds or commodities, so buying one share of the ETF gives you a slice of the whole basket. Most ETFs simply track an index, which keeps their costs low.

ETFs are popular because they bundle diversification, low fees and easy trading into one ticker. What you own depends on what is inside: an ETF of the 500 largest US stocks, a bond ETF and a single-theme ETF have very different risks. It is worth checking the holdings, the fee and how closely the fund tracks its index.

Worked example

Illustrative numbers

Suppose an ETF holds 500 stocks and you invest $1,000. Instead of choosing one company, your money is spread across all of them in proportion to their weights in the fund. If one holding falls sharply, it hurts only its small share of the total.

This is an illustration of how a basket works; the real holdings, weights and fees are in each fund's own documents.

How ATLAS uses it

ATLAS covers thousands of ETFs, with the same probability, expected range and risk numbers as for individual stocks.

Frequently asked questions

What is the difference between an ETF and a mutual fund?

Both pool money, but ETFs trade on an exchange during the day at market prices, while mutual funds are bought and sold at the end-of-day value. ETFs usually have lower costs.

Is an ETF safer than a stock?

Usually less risky than a single stock thanks to diversification, but not risk-free: it can still fall when the market it tracks falls.

Related terms

Put the idea to work on your own stocks

Open any company in ATLAS to see its fair value, its odds of rising and its risk numbers side by side.

Try ATLAS →

Not investment advice. ATLAS estimates are produced by statistical models from public data; they can be wrong and past performance does not predict future results. Consider your own situation before investing. Disclaimer