Exchange-traded funds (ETFs), like mutual funds, provide convenience, diversification, and professional management. Most ETFs trade like stocks, on the American Stock Exchange, under ticker symbols such as QQQ and SPY, for ETFs that track the Nasdaq 100 and the S&P 500.
Some investors prefer ETFs because you can do some things with ETFs that you can’t do with mutual funds: ETFs can be bought on margin, sold short, and traded subject to all types of limit orders. Insight: Selling an ETF short may give investors a chance to lock in stock market gains without having to realize those gains and pay income tax. Also, shorting an index ETF means you’ll make money if that index drops.
Moreover, ETF trades are done instantly. With a mutual fund, transactions are not priced until the end of the day. Thus, ETFs provide greater liquidity and transparency: you know what you’re buying and what price you’re paying.