What characterizes exchange-traded funds (ETFs)?

Exchange-traded funds (ETFs) are characterized by being traded on stock exchanges similarly to individual stocks. This means that investors can buy and sell shares of ETFs throughout the trading day, allowing for real-time pricing and liquidity. The ability to trade ETFs just like stocks gives investors flexibility in managing their investments and responding quickly to market changes.

This structure also allows for a variety of trading strategies, including short selling and limit orders, which can enhance an investor’s ability to optimize returns. Additionally, ETFs typically have lower expense ratios compared to mutual funds, which makes them an attractive option for many investors.

This highlights how ETFs combine the diversification benefits of traditional mutual funds with the trading flexibility of individual stocks, making them a popular choice for a wide range of investors, not just institutional ones.