Exchange-traded products (ETPs) are similar to mutual funds in that they’re made up of a basket of securities. For ETPs, those securities include stocks, bonds, commodities, or indices.
The main difference between exchange-traded products and mutual funds is that ETPs are traded on an exchange.
You can buy or sell ETP shares on a stock exchange – much like the purchase or sale of any other listed stock – throughout the trading day.
They often passively follow an index or other benchmark, but they may be actively managed.
Traditional exchange-traded products are generally not actively managed and typically generate fewer capital gains.
ETPs can be viewed as a low-cost alternative to mutual funds and actively-managed funds.
About Investing in Trades
ETPs can contain a few underlying investments or hundreds of them.
Since prices of ETPs can fluctuate, investors have the potential to earn gains but also have the risk of market losses.
They may provide diversification to your overall portfolio, because one share or one unit may represent multiple underlying stocks, bonds, and/or other asset classes.
In general, underlying fees and expenses are low. Non-traditional and actively managed exchange-traded products will generally have higher fees than traditional ones.
Traditional exchange-traded products are generally not actively managed and, as a result, typically generate fewer capital gains due to the low turnover of the securities within their portfolio.