Exchange Traded Funds (ETFs) are a great way to play the market as a whole, a specific industry, or an index. They trade like stocks as their price fluctuates each day, experiencing price changes throughout the day so its value isnt calculated like a mutual fund. To top it off, buying them is as easy as making a stock trade online. Lets explore.

ETFs Broken Down

A Exchange Traded Fund (ETF) is simply a security that tracks an index, group of stocks, commodity, etc. but is traded like a stock on a stock exchange. The first big point to note is that an ETF is NOT a mutual fund because ETFs prices change throughout the day just like a stock.

Lets say that you are bullish on internet stocks like Amazon (AMZN), Yahoo (YHOO), Time Warner (TWX), and Ebay (EBAY). Well we know that if we only have several thousand dollars to spend it will be very tough to buy relative positions in these companies. But with ETFs we could simply buy an ETF like the Internet HOLDRs (HHH) which holds positions in all of these companies and more. We buy HHH like a stock, it trades like a stock, and in reality we are holding a securities that simply tracks a group of stocks.

Index Funds

The most popular ETFs are the index funds. Want to invest in the NASDAQ, then buy a position in what is called the Qs, or ETF QQQQ. Want to be short on the NASDAQ, then pick yourself up some shares of the QID, which is the Qs ultrashort proshares. There are also ETFs that track the S & P 500 which is the SPY, and the Dow Jones Industrials has the DIA. Bottom line here is that really every index has an ETF long and short.

Other ETFs

ETFs can be used to get yourself invested in anything, anywhere, for example:

• Energy XLE
• Oil Services OIH
• Oil USO
• Technology XLK
• Semiconductors SMH
• Financials XLF
• REITs VNQ
• US Real Estate IYR
• Malaysia EWM
• Emerging Markets EEM
• Silver SLV
• Gold GLD

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