An Exchange Traded Fund (ETF), is a marketable security that tracks a commodity or asset. Its operation is like those of an index fund. ETF trades like a shared stock on a stock exchange. The ETFs experience price changes during the day because they are traded. ETFs experience a higher daily liquidity with lower fees than other mutual fund shares. The fact that ETFs have lower fees makes them more attractive, and investors consider it as an alternative. Additionally, the advanced ETF structures allow investors to short markets, gain influence, and to avoid taxes on short-term capital gains.
Spider (SPDR) which stands for a Standard and Poor's Depositary Receipt, is an example of an exchange-traded fund that is managed by State Street Global Advisors. This state tracks the Standard & Poor's 500 indexes. Investors rely on SPDRs because they provide them with value the same way mutual funds do. However, the Spiders trade like a common equity. The returns of a SPDR are calculated using net asset value. The calculations are like a fund, which is derived using the total value of the primary group of investments. Still, SPDRs can be purchased and sold through a brokerage account. This means that strategies that use stop-losses and limit orders can apply.
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