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WHAT ARE ETFs?
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ETF’s, exchange traded funds, designate a pool fund with a specific investment objective that can be realized in the form of growth within an industry or sector. An ETF is a security, experiencing price fluctuations throughout the day as it is bought and sold, that tracks an index, a collection of assets like an index fund, or even commodities. The shares within these funds are then available for trading on an exchange.

One common ETF is Spider (Amex: SPY), tracks the S&P 500.

 
HOW DO YOU MAKE MONEY ON ETFs?
By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. This provides security from the risks investors typically experience when trading single shares, as the pricing mirrors the share price performance of those socks within the indices and sectors. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.