Exchange traded funds are just one of the financial security options available for both traders and investors. ETF’s are a certain type of financial security that tracks a particular market index, commodity or a basket of assets that act like an index fund but is traded like a stock on a certain exchange. And just like stock, ETF’s may experience price changes all through the day as they are being bought and sold.

ETF Beginnings

Experts may still argue as to when and where the first ETF ever came into the market. Some may say that it had its beginnings as a variation of an exchange traded product that was introduced in 1989 in Canada. It tried to track the largest traded stocks on the Toronto stock market. The product was then known as the Toronto Index Participation Fund.

But other experts tend to believe that the precursor of ETF’s was during the introduction of Standard and Poor’s Depositary Receipt or SPDR in 1993. SPDR’s are ETF’s that tracks the performance of the S&P 500 Index and is still around being traded even today. SPDR’s is considered today as the largest ETF in terms of assets being traded in US exchanges.

ETF’s And Mutual Funds

ETF’s are always compared to mutual funds in that they both may represent a number of stocks or securities that trade like individual stocks. Essentially, this comparison is true in the sense that both ETF’s and mutual funds give traders and investors access to a basket of stocks and securities as opposed to just individual stocks and assets. Through a mutual fund or ETF’s, one may be able to get exposure to a collection of stocks or securities put together into a single fund. ETF’s may only have a distinct advantage in that it enjoys superior liquidity as compared to mutual funds.

Better ETF Liquidity

Another difference between mutual funds and ETF’s is that mutual funds are usually traded at a single price during the course of a trading day. ETF’s on the other hand are issued as stocks and may change hands during the course of the day as they are being bought and sold at different prices. ETF’s may be a good investment for both the long-term as well as the short-term traders alike based on this characteristic.