What is an ETF?
An ETF is similar to a mutual fund but trades like a stock. ETFs are a collection of stocks that usually reflect an index such as the S&P 500. You can trade an ETF just like any other stock. You can short them, buy them on margin or buy any amount. You also pay the same commission as you would a regular stock trade.
When you own an ETF, you have the diversification of an index fund plus the flexibility of a stock. ETFs do fluctuate during the day though based on normal market conditions.
The S&P 500 Index was the first ETF created and began trading in 1993. Today there are hundreds of ETFs tracking many different indexes. Below we’ll highlight a couple of the more popular ones.
Nasdaq-100 Index Tracking Stock (NASDAQ:QQQQ)
This ETF represents the top 100 non-financial stocks on the Nasdaq. QQQQ offers good exposure to the tech sector and is a great way to invest long-term in the technology industry. This ETF can offer a huge advantage in a volatile market. For example if a tech company falls short on its earnings report it will probably be hit hard, but trading this ETF can help you manage that type of risk.
United States Natural Gas (NYSE:UNG)
This ETF will try to follow the price of natural gas.
Direxion Daily Financial Bear 3x Shares (NYSE:FAZ)
The FAZ is a little different than most ETFs. Not all ETFs move in the same direction or the same amount as the index they track. The FAZ for example tries to perform 300% in the opposite direction of the Russell 1000. This ETF was very popular during the financial crisis of 2008 and 2009.
ETFs simplify index and sector investing and offer investors a great way to get into the stock market at reasonable prices.