ETF is the abbreviation for Exchange Traded Fand. ETFs are therefore investment funds that are traded on the stock exchange.
What are funds?
If you want to invest your money in the stock market, you should not just buy one financial product, such as oil, gold, Apple shares or Bitcoin, but diversify.
Small investors often don’t have enough money to diversify. One Amazon share currently costs almost $3,500. Many investors open their portfolios with less money, so they don’t even have enough for a single share. However, if an investor invests in a fund that invests in the S&P 500, for example, then the investment is spread over 500 different Stocks with little money. The fund company invests in the individual components of the fund and sells smaller shares to the investors. Funds are usually purchased at your own bank. As an active trader, it is of course problematic to run to the bank for every trade. Therefore ETFs were called into being.
What are ETFs
ETFs are basically nothing more than conventional funds, but they are traded on the stock exchange. That means traders have thanks to ETFs the opportunity to buy and sell funds several times a day. But also long-term investors benefit from ETFs. It is simply more convenient to buy a fund with a few mouse clicks.
What kind of ETFs are there?
ETFs are not only available for stock indices, such as the DAX or S&P 500, but also for bonds, precious metals, commodities, real estate, cryptocurrencies, etc.