What are ETFs
Beginner lesson: the basket fund you trade like a share
What are ETFs
The lesson in plain words
The same lesson as the slides above, written out in full.
1. What are ETFs
Welcome. Let us start with one of the most popular ways people invest today, the exchange-traded fund. Think of an ETF as a single basket that already holds many companies, so one purchase can spread you across a whole slice of the market. Over the next few minutes we will unpack how they work and where to be careful.
- ETF stands for exchange-traded fund
- It is a basket of holdings bundled into one product
- You buy and sell it like a single share
- One trade can give you many companies at once
A quick note: This is financial education only, not financial advice. All numbers are illustrative, nothing here is a recommendation to buy or sell, and you should do your own research or speak to a qualified professional before investing.
2. Low cost, instant diversification
The big appeal is diversification. Instead of researching and buying dozens of shares one by one, a single ETF purchase can spread your money across many holdings at once. Most broad funds also charge only a small annual fee, so more of your money stays invested. Remember that spreading out lowers the impact of any one company, but it never removes risk entirely.
- Diversification spreads your money across many holdings
- One purchase, not dozens of separate trades
- Most broad funds charge only a low annual fee
- Spreading out softens a single company stumble
- It lowers risk but never removes it entirely
3. How most ETFs track an index
Most ETFs are not trying to be clever. They simply track an index, which is just a measured slice of the market, and the fund aims to mirror it rather than beat it. This is often called passive investing, and it is one reason many ETFs are so low cost. When the index rises or falls, the fund is designed to move closely alongside it.
- Many ETFs simply track an index
- An index measures a slice of the market
- The fund aims to mirror it, not beat it
- This is often called passive investing
- Mirroring keeps the fees low
4. The main types
ETFs come in a few main flavours. Stock index and bond funds are the everyday building blocks, while sector or theme funds zoom into one area. Leveraged and inverse funds are different: they use leverage to amplify daily moves, which adds outsized risk and can decay in value over time, so we treat them as education, not an endorsement. Titan's own approach stays with shares and long options that have clearly defined risk, and any bearish view is expressed through long put options rather than short-selling.
- Stock index funds track a broad market
- Bond funds hold baskets of bonds
- Sector or theme funds focus on one area
- Leveraged and inverse funds amplify moves and carry far more risk
- Titan favours shares and long options with defined risk
What an ETF owns, and ETF vs stock
An ETF (exchange-traded fund) is a fund that holds a basket of investments, such as shares or bonds, and trades on a stock exchange like a single share.
What it owns: most ETFs hold the actual shares or bonds in their index, and publish their holdings, often daily. Some instead hold contracts that promise a return. Those carry more risk, and ETNs differ again because they are a bank's promise to pay rather than a basket (see ETNs vs ETFs).
ETF vs stock: a stock is a slice of one company. An ETF is a slice of many at once, so one company's bad news moves it far less. Both are bought the same way, through a brokerage account, at the market price during the trading day. A mutual fund, by contrast, is priced once a day after the close.
The minimum is usually the price of one share, and many brokers now let you buy part of a share.
The yearly fee is the expense ratio. An illustrative example: 0.10% a year on $10,000 is $10 a year. A 1% fund costs $100 a year for the same money.
Leveraged and inverse ETFs behave very differently over time (see Leveraged and inverse ETFs). Unlike hedge funds (see Hedge funds), ETFs are open to anyone. For funds screened for Islamic rules, see our Halal ETFs page.
ETFs are bought and held in a brokerage account: see Brokerage accounts.
Quick answers
What is an ETF in simple terms?
An ETF, or exchange-traded fund, is a basket of investments, such as many company shares or bonds, packaged into one product that you buy and sell on a stock exchange like a single share. Most ETFs track an index and charge a low yearly fee.
What does an ETF actually own?
Most ETFs own the actual shares or bonds in the index they follow, and they publish their holdings regularly, often every day. Some use contracts to copy a return instead of holding the assets, which adds risk, so it is worth checking the fund's holdings page before buying.
What is the difference between an ETF and a stock?
A stock is a share of one company. An ETF holds many companies or bonds at once, so a single company's bad news moves it much less. Both are bought through a brokerage account and trade at market prices throughout the day.
What is the minimum investment for an ETF?
Usually the price of one share, and many brokers now let you buy a fraction of a share for a few dollars. Check the yearly fee too: as an illustrative example, a 0.10% fee on $10,000 costs $10 a year.
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