Editing Exchange-traded fund (section)

==ETFs vs. mutual funds==
ETFs are similar in many ways to [[mutual funds]], except that ETFs are bought and sold from other owners throughout the day on stock exchanges, whereas mutual funds are bought and sold from the issuer based on their price at day's end. ETFs are also more transparent since their holdings are generally published online daily and, in the United States, are more tax efficient than mutual funds.<ref name=schwabvs>{{Cite web |title=ETFs vs. mutual funds |url=https://www.schwab.com/etfs/mutual-funds-vs-etfs |publisher=[[Charles Schwab Corporation]]}}</ref><ref>{{Cite web |title=Benefits of ETFs |date=September 19, 2024 |url=https://www.fidelity.com/learning-center/investment-products/etf/benefits-of-etfs |publisher=[[Fidelity Investments]]}}</ref><ref>{{Cite web |title=Benefits and considerations of ETFs |url=https://www.schwab.com/etfs/benefits |publisher=[[Charles Schwab Corporation]]}}</ref> Unlike mutual funds, ETFs trade on a [[stock exchange]], can be sold [[Short (finance)|short]], can be purchased using funds borrowed from a stockbroker ([[Margin (finance)|margin]]), and can be purchased and sold using [[Order (exchange)|limit orders]], with the buyer or seller aware of the price per share in advance.<ref>{{Cite news |last=Keller |first=Burton |date=August 5, 2019 |title=Are Active ETFs a Threat to Mutual Funds? |work=[[ALM (company)|ThinkAdvisor]] |url=https://www.thinkadvisor.com/2019/08/05/are-active-etfs-a-threat-to-mutual-funds/}}</ref><ref>{{Cite web |last=Boyte-White |first=Claire |date=March 5, 2020 |title=The Right Time to Change From Mutual Funds to ETFS |url=https://www.investopedia.com/articles/investing/020116/when-right-time-change-mutual-funds-etfs.asp |website=[[Investopedia]]}}</ref>

===Costs and fees===
Both ETFs and mutual funds charge annual [[expense ratio]]s that range from 0.02% of the investment value to upwards of 1% of the investment value. Mutual funds generally have higher annual fees since they have higher marketing, distribution and accounting expenses ([[Mutual fund fees and expenses#United States|12b-1 fees]]).<ref>{{Cite web |title=ETFs vs. mutual funds: Cost comparison |url=https://www.fidelity.com/learning-center/investment-products/etf/etfs-cost-comparison |publisher=[[Fidelity Investments]]}}</ref> ETFs are also generally cheaper to operate since, unlike [[mutual fund]]s, they do not have to buy and sell securities and maintain cash reserves to accommodate shareholder purchases and redemptions.<ref>{{Cite web |title=How ETFs Work |url=https://www.wisdomtree.com/-/media/us-media-files/documents/resource-library/etf-education/how-etfs-work.pdf | publisher=[[WisdomTree Investments]]}}</ref><ref>{{Cite news | url=https://www.entrepreneur.com/money-finance/etf-vs-mutual-funds-what-are-the-differences/443672 | title=ETF vs. Mutual Funds: What Are the Differences? | work=[[Entrepreneur (magazine)|Entrepreneur]] | date=January 26, 2023}}</ref><ref>{{Cite web | url=https://www.td.com/ca/en/investing/direct-investing/articles/etfs-vs-mutual-funds | title=ETFs vs. Mutual Funds: What's the difference? | work=[[TD Bank]]}}</ref><ref>{{Cite news | url=https://www.businessinsider.com/personal-finance/etf-vs-mutual-fund | title=ETFs and mutual funds can instantly diversify your portfolio, but they differ in how they're traded, managed and taxed | first1=Will | last1=Kenton | first2=Paul | last2=Kim | work=[[Business Insider]] | date=May 26, 2022}}</ref>

[[Stockbroker]]s may charge different commissions, if any, for the purchase and sale of ETFs and mutual funds. In addition, sales of ETFs in the United States are subject to transaction fees that the national securities exchanges must pay to the SEC under section 31 of the [[Securities Exchange Act of 1934]], which, as of February 2023, is $8 per $1 million in transaction proceeds.<ref>{{Cite web | url=https://www.finra.org/rules-guidance/notices/information-notice-021423 | title=New Rate for Fees Paid Under Section 31 of the Exchange Act | publisher=[[Financial Industry Regulatory Authority]] | date=February 14, 2023}}</ref> Many mutual funds can be bought commission-free from the issuer, although some charge front-end or back-end [[Mutual fund fees and expenses#Loads|load]]s, while ETFs do not have loads at all.<ref>{{Cite web |last=Iachini |first=Michael |date=January 28, 2020 |title=ETF vs. Mutual Fund: It Depends on Your Strategy |url=https://www.schwab.com/learn/story/etf-vs-mutual-fund-it-depends-on-your-strategy |website=[[Charles Schwab Corporation]]}}</ref>

===Taxation===
In the United States, ETFs can be more attractive tax-wise than mutual funds for transactions made in taxable accounts. However, there are no tax benefits to ETFs compared to mutual funds in the United Kingdom and Germany.<ref>{{Cite web |last=Lodge |first=Steve |date=April 16, 2010 |title=Are ETF dividends taxed differently? |url=https://www.ft.com/content/c348228a-4981-11df-9060-00144feab49a |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/c348228a-4981-11df-9060-00144feab49a |archive-date=December 10, 2022 |url-access=subscription |website=[[Financial Times]]}}</ref><ref>{{Cite web |title=Stocks and Shares ISA: A low cost and tax-efficient way to invest |url=https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-isa |publisher=[[The Vanguard Group]]}}</ref><ref>{{Cite web|url=https://horizon65.com/en/germany/retirement/investments/private-pension/|title=Ultimate Guide to Private Pension Plans in Germany|website=www.horizon65.com|date=March 16, 2023 |access-date=2023-03-16}}</ref>

In the US, whenever a mutual fund realizes a [[capital gain]] that is not balanced by a realized loss (i.e. when the fund sells appreciated shares to meet investor redemptions), its shareholders who hold the fund in taxable accounts often pay [[capital gains tax]]es on their share of the gain.<ref>{{Cite news |last=Wallace |first=Karen |date=December 5, 2019 |title=What You Need to Know About Capital Gains Distributions |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/720873/what-you-need-to-know-about-capital-gains-distributions}}</ref><ref>{{Cite news |last=McGowan |first=Lee |date=July 7, 2020 |title=What Are Mutual Fund Capital Gains Distributions? |work=[[Dotdash]] |url=https://www.thebalance.com/mutual-fund-capital-gains-distributions-2466692}}</ref> However, ETF investors generally only realize capital gains when they sell their own shares for a gain.<ref>{{Cite web |last=Iachini |first=Michael |date=August 6, 2019 |title=ETFs and Taxes: What You Need to Know |url=https://www.schwab.com/resource-center/insights/content/etfs-and-taxes-what-you-need-to-know |website=[[Charles Schwab Corporation]]}}</ref>

ETFs offered by [[The Vanguard Group|Vanguard]] are actually a different share class of its mutual funds and do not stand on their own; however, they generally do not have any adverse tax issues.<ref>{{Cite news |last=Johnson |first=Ben |date=January 15, 2020 |title=Vanguard's Unique ETF Structure Presents Unique Tax Risks |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/962031/vanguards-unique-etf-structure-presents-unique-tax-risks |authorlink=Benny Johnson (columnist)}}</ref><ref name="dodge">{{Cite news |last1=Mider |first1=Zachary R. |last2=Massa |first2=Annie |last3=Cannon |first3=Christopher |date=May 1, 2019 |title=Vanguard Patented a Way to Avoid Taxes on Mutual Funds |work=[[Bloomberg News]] |url=https://www.bloomberg.com/graphics/2019-vanguard-mutual-fund-tax-dodge/ |url-access=subscription |authorlink1=Zachary Mider}}</ref><ref>{{Cite web |year=1997 |title=System and method for supporting a new financial instrument for use in closed end funds |url=https://patents.google.com/patent/US5983204 |via=[[Google Patents]]}}</ref><ref>{{Cite news |last1=Johnson |first1=Ben |last2=Benz |first2=Christine |date=April 11, 2018 |title=Should You Worry About the Tax Efficiency of Vanguard ETFs? |work=[[Morningstar, Inc.]] |url=https://www.morningstar.com/articles/858483/should-you-worry-about-the-tax-efficiency-of-vanguard-etfs}}</ref>

===Trading===
ETFs can be bought and sold at current market prices at any time during the trading day, unlike [[mutual funds]], which can only be traded at the end of the trading day. Also unlike mutual funds, investors can execute the same types of trades that they can with a stock, such as [[limit order]]s, which allow investors to specify the price points at which they are willing to trade, [[stop-loss order]]s, [[margin buying]], [[hedge (finance)|hedging]] strategies, and there is no minimum investment requirement. ETFs can be traded frequently to hedge risk or implement [[market timing]] investment strategies, whereas many mutual funds have restrictions on frequent trading.<ref name=ConceptRelease/><ref>{{Cite book |last=Gastineau |first=Gary |url=https://books.google.com/books?id=CIYoyIrP6cIC |title=The Exchange-Traded Funds Manual |publisher=[[Wiley (publisher)|Wiley]] |year=2002 |isbn=978-0-471-21894-4 |page=227}}</ref>

[[Option (finance)|Options]], including [[put option]]s and [[call option]]s, can be written or purchased on most ETFs – which is not possible with mutual funds, allowing investors to implement strategies such as [[covered call]]s  on ETFs. There are also several ETFs that implement covered call strategies within the funds.<ref>{{Cite web |last=Nibley |first=Brian |date=March 5, 2021 |title=Pros and Cons of a Covered Call ETF—and When to Buy |url=https://www.sofi.com/learn/content/covered-call-etf/ |website=[[SoFi]]}}</ref><ref>{{Cite news |last=Heinzl |first=John |date=July 25, 2014 |title=Don't be tempted by covered call ETF yields |work=[[The Globe and Mail]] |url=https://www.theglobeandmail.com/globe-investor/investor-education/dont-be-tempted-by-covered-call-etf-yields/article19782362/}}</ref><ref>{{Cite news |date=July 23, 2021 |title=It's Looking Like a Fine Time to Consider Covered Call ETFs |work=[[Nasdaq]] |url=https://www.nasdaq.com/articles/its-looking-like-a-fine-time-to-consider-covered-call-etfs-2021-07-23}}</ref>

Many mutual funds must be held in an account at the issuing firm, while ETFs can be traded via any stockbroker. Some stockbrokers do not allow for automatic recurring investments or trading fractional shares of ETFs, while these are allowed by all mutual fund issuers.<ref name=schwabvs/>

The most popular ETFs such as those tracking the [[S&P 500]] trade tens of millions of shares per day and have strong [[market liquidity]], while there are many ETFs that do not trade very often, and thus might be difficult to sell compared to more liquid ETFs. The most active ETFs are ''very'' liquid, with high regular trading volume and tight [[bid-ask spread]]s (the gap between buyer and seller's prices), and the price thus fluctuates throughout the day. This is in contrast with mutual funds, where all purchases or sales on a given day are executed at the same price at the end of the trading day.

===Transparency===
Issuers are required by regulators to publish the composition of their portfolios on their websites daily, or quarterly in the case of active non-transparent ETFs.<ref>{{Cite press release |title=SEC Adopts New Rule to Modernize Regulation of Exchange-Traded Funds |date=September 26, 2019 |publisher=[[U.S. Securities and Exchange Commission]] |url=https://www.sec.gov/news/press-release/2019-190}}</ref><ref>{{Cite web |last=Peirce |first=Hester |author-link=Hester Peirce |date=May 21, 2019 |title=A Quarter Century of Exchange-Traded Fun! |url=https://www.sec.gov/news/speech/speech-peirce-052119 |publisher=[[U.S. Securities and Exchange Commission]]}}</ref><ref>{{Cite news |last=Riquier |first=Andrea |date=January 31, 2020 |title=What is a 'non-transparent' ETF, and why would anyone want to own one? |work=[[MarketWatch]] |url=https://www.marketwatch.com/story/get-ready-for-a-new-flavor-of-etf-non-transparent-2019-11-15}}</ref>

ETFs are priced continuously throughout the trading day and therefore have price transparency.<ref>{{Cite web |date=January 22, 2018 |title=ETF Education: How Transparent Are ETFs? |url=https://www.etf.com/sections/features-and-news/etf-education-how-transparent-are-etfs |publisher=ETF.com}}</ref>