What’s an ETF?
An ETF, or exchange traded fund, are securities that are created to behave the same way as a specific index or a collection of different securities. This means the ETF will follow in tandem with the securities it is meant to follow.
For Example: Let’s say there was an ETF that tracks the performance of the oil sector. That ETF will often include other stocks in the oil industry. So let’s suppose this oil ETF included shares in companies such as BP, Lukoil and ExxonMobil. The ETF’s performance would be based on the average of the three companies rather than just one. That way, if BP goes bankrupt, your investment is still hedged via Lukoil and ExxonMobil. This is one advantage to trading ETFs.