Exchange Traded Funds Primer

Exchange Traded Funds (ETFs) are a group of passive index funds that trade on an exchange like an individual stock. At the time of writing there are 162 ETFs with $220 billion in assets under management trading on U.S. exchanges.

ETFs hold a basket of securities that mimic the results of various indices including broad stock and bond market, industry sectors, and international securities. New niche funds are being created regularly. Recent introductions include gold and China funds, and there are rumors that a silver ETF will soon be available.

The most popular ETF is the NASDAQ 100 Tracking Stock (QQQQ) trading 50 million shares a day on the NASDAQ Stock Market. The volume leaders on the American Stock Exchange are the SPDRS (SPY) tracking the S&P 500 trading 25 million shares per day, the Energy SPDR (XLE), Japan iShares (EWJ), Russell 2000 iShares (IWM), and the Financial SPDR (XLF).

ETFs are widely used by institutional and individual investors as a tool for diversification, risk reduction, hedging, and an efficient way to acquire a basket of securities providing partial ownership in all holdings with only a single commission and small administration fees. ETFs are also transparent, meaning that investors know at all times what securities they are invested in.

There are now also options and futures contracts trading on of ETFs. The Chicago Board Options Exchange (CBOE) lists 43 options on ETFs, while the Chicago Mercantile Exchange (CME) offers futures contracts on the S&P 500 Depository Receipts, NASDAQ 100 Tracking Stock, and Russell 2000 Index Fund. And One Chicago, a joint venture between the CBOE, CME, and Chicago Board of Trade (CBOT), offers an electronically traded futures contract on the DIAMONDS Dow Jones Industrial Average ETF.

There are also a number of web sites offering information on Exchange Traded Funds. Check out Amex.com, Yahoo! Finance's ETF Center, ETFConnect, or ETFera.com. Meanwhile, investment research firm Morningstar compares the fair value estimates to market prices of exchange traded funds holdings to determine whether a fund is over or undervalued.

Exchange Traded Fund's low costs, liquidity, and diversification make them an excellent alternative to mutual funds, broad based index investments, and individual stocks in niche sectors.

Mark Mahorney is the owner of Cofishop Media Group located in Keystone, CO. Cofishop is a diverse marketing services organization and online content syndicator of a suite of financial sites. Mark has been a contributing author to The Motley Fool and published in numerous leading financial publications.

Mark inks The Market Speculator newsletter, a hedged approach to market profits for individual investors. You can also read his scrawls, scribbles, rambles, and rants on the markets and whatever other ilk gets his ire at BlogginWallStreet.com and Marketblog.com.

MarketSpectator.com: Profit in the calm, protect in the storm
BlogginWallStreet.com: What really moves the markets
MarketBlog.com: Market missives and more

---

Where Is The Beef?

Where is the beef? Or maybe it should be where... Read More

Stock Investment Advice

Stock investment advice is easy to find. Do you get... Read More

I Love You, Warren Buffet

Sometime around 1980, can't remember exactly, there was a flight... Read More

On Line Stock Trading: Small Cap & Micro Stocks Go Up and Down - How Can You Profit?

Success in small cap & micro cap stock trading like... Read More

Rebalance And Diversify

The stock market has not been very kind to your... Read More

Keep Your Profits

It looks like we have now entered a new bull... Read More

Stock Loans

Hedge current portfolio positions and gain access to capital resources... Read More

Trading Tips No 2: The Big Lie in the Stock Market

It is commonly reported that the stock market averages about... Read More

Understanding the Bulls and the Bears

If you've ever flipped on the television to CNN Financial... Read More

Evaluation I

An insane person cannot evaluate an insane evaluation system.As you... Read More

Never Fall In Love!

Recently I watched my favorite football team lose a vital... Read More

Duck

Duck! No I don't mean a quack, quack. I meant... Read More

Struggling Stocks, Booming Commodities

04/28/2005NASDAQ dropped -12.5% year to date in 2005. S&P500 index... Read More

No Load Mutual Funds: Investment Hype vs. Investment Help

With the internet such a huge part of our daily... Read More

The Value of Stocks of a Company

The debate rages all over Eastern and Central Europe, in... Read More

Psychology ? How to Reduce Negative Thoughts Relating to Trading?

The thinking process of the brain relating to the... Read More

War Market

There is no question that the stock market is being... Read More

Investing Basics - Stocks, Mutual Funds, Real Estate & Online Investing

Have you ever thought of investing? Do you have a... Read More

Kick The Tires

Before you buy another car you walk around the lot,... Read More

Complacency Indicator

If you haven't heard of the technical indicator with the... Read More

Dont Lose All Your Money

That sounds like good advice doesn't it? Don't lose all... Read More

Good Stock Market Tip; Good Return!

Forget making a profit; instead focus on the income provided... Read More

The Shadow

The Shadow knows. There used to be a radio program... Read More

Frog In The Pot

You remember the story about the frog that was put... Read More

The Stock Market is a Roller Coaster: Prepare for the Ups and Downs

IT'S REMINISCENT OF THE OLD children's tale about an old... Read More

Mid-Cap Stocks: Asset Class with an Identity Crisis

Much like the middle child, mid-cap stocks have long struggled... Read More

Commoditizing the world

Let's discuss commodities; with the latest Enron situation, it is... Read More

The Information Age

It is wonderful to be alive in the information age.... Read More

Red, Green, Yellow - or - Stop, Go, Go Very Fast: Which Describes Your Online Trading?

Ever notice how behavior in one area of life can... Read More

A Personal Stock Market Investment Philosophy

∙ Make every investment in the stock market a long-term... Read More

Option Trading Basics

Options trading can increase the profits you make when trading... Read More

Investing in Stocks and The Game of Monopoly

To begin, you might look at playing the stock market... Read More

401K-itis

Are you one of those many people who dread reading... Read More