What Does ETF Stand For?

What does ETF stand for, word by word?

Each word tells you one part of how the product works.

Put together, an ETF is a fund you can trade the way you trade a single company's stock. Nobody says it as a word; you read the three letters out, E T F, which puts it in the initialism family. For more on that split, see acronym vs abbreviation.

How an exchange-traded fund works

A fund company gathers a portfolio, such as every stock in a well known market index, a group of government bonds or a set of companies in one industry. It then divides ownership of that portfolio into shares, and those shares are listed on an exchange under a short ticker symbol.

From there, investors trade shares with each other through a brokerage account. The price changes through the day as buyers and sellers act. Most ETFs track an index, which means the fund simply copies a list of holdings rather than having a manager pick each one. Some are actively managed, and some focus on a theme, a country or a commodity like gold.

ETF vs mutual fund

Both pool money from many investors, so people often mix them up. The main differences are about trading and timing.

• Pricing: an ETF price moves all day. A mutual fund is priced once a day, after the market closes, at its net asset value.
• Where you buy: ETF shares trade on an exchange. Mutual fund shares are usually bought from and sold back to the fund company.
• Minimums: many ETFs can be bought one share at a time, while some mutual funds ask for a set starting amount.
• Taxes: in a regular taxable account, the way ETFs are built often leads to fewer capital gains payouts, though this is not guaranteed.

An index mutual fund and an index ETF that follow the same list can hold nearly the same things. The wrapper is what differs.

Words that come up next to ETF

Reading a fund page is easier once you know a few neighbors of the term.

• Ticker: the short code of letters used to trade the fund.
• Expense ratio: the yearly cost of running the fund, shown as a percent of your balance.
• Index: the list of holdings a passive fund copies.
• NAV: net asset value, the value of everything the fund holds divided by its shares.
• Dividend: cash some holdings pay, which the fund passes on to shareholders.

You may also meet ETFs inside an IRA or a workplace plan, and in news about the Nasdaq and other exchanges. An IPO is how a company first lists its shares, while an ETF is created by a fund sponsor.

ETF or EFT: a common mix-up

Swap two letters and you get a very different term. EFT means electronic funds transfer, a way to move money between bank accounts, such as direct deposit. If a bank statement says "EFT deposit," money arrived electronically. If a statement lists "ETF shares," you own part of an investment fund.

A quick check: transfers move money, funds hold investments. Other uses of the letters exist in narrow settings, but in money talk ETF almost always means the fund.

Using ETF in a sentence

• "Most of my retirement savings sit in two index ETFs."
• "The bond ETF dropped a little after the rate news."
• "Is an ETF safer than a single stock?" (It spreads risk across holdings, but its value can still fall.)
• "She bought five shares of an ETF that tracks large companies."

The plural is just ETFs; skip the apostrophe. Use "an" before it, as in "an ETF," because the first sound is "ee." More money terms are collected in our business acronyms section.