An ETF or exchange-traded fund is a type of security that collects a basket of multiple securities that matches its investment theme. ETFs trades on an exchange (just like an ordinary stock) and often track an underlying index, although an ETF can invest in any number of industry sectors or use various strategies. There are many types of ETFs, including bonds, industries, commodities and currencies ETFs.
ETFs are in many ways similar to mutual funds, but they are listed on exchanges and ETF shares trade throughout the day just like an ordinary stock does. By purchasing an ETF, you benefit from the combination of many stocks across various industries and better risk management through diversification at a lower cost than buying each stock individually.