Exchange-traded funds (ETFs) are a relatively simple form of investment. ETFs are relatively easy to understand and can generate impressive returns with minimal expense and effort. In this article, Joker brings you a beginner’s guide to ETFs. We will define what an ETF is, explain how to trade ETFs, and discuss whether ETFs are a worthwhile investment in 2025.
Exchange-traded funds, or ETFs, can be a great entry point into the stock market for new investors. An ETF holds investments in a variety of assets. By buying a share of the fund, you own a small position in each of its holdings. ETFs make it easy for investors to build a diversified portfolio, and many funds charge only small fees while offering some great benefits. They are generally inexpensive and typically carry less risk than individual stocks.
Key features:
| ✅ An ETF is a basket of securities that are traded on an exchange, like stocks. |
| ✅ ETFs can hold all types of investments, including stocks, commodities, or bonds. |
| ✅ ETF prices fluctuate throughout the day because ETFs are bought and sold – unlike mutual funds, which trade only once a day at the close of business. |
Interesting fact: ETFs were created in the aftermath of the 1987 stock market crash in the US, when passive investing gained popularity.
What is an ETF Fund?
ETF (exchange-traded fund) is so called because it is traded on the stock exchange, just like stocks. The price of ETF shares fluctuates throughout the trading day as shares are bought and sold in the market.
Like a mutual fund, an ETF holds positions in a variety of assets, typically stocks or bonds. Holdings typically track a predetermined index rather than actively investing. Therefore, ETFs are usually passive investments. The wide range of fund holdings enables diversification, which reduces (but of course does not eliminate) risk. ETFs are often focused on a specific type of asset and invest in a particular collection of stocks, such as value or growth stocks, specific countries or industries, and other possible categories. Therefore, investors can purchase ETFs that provide them with targeted exposure to specific types of assets.
What is the Difference Between an ETF and a Mutual Fund?
The key difference between these two types of investments is how they are bought and sold. Mutual funds are priced once a day, and you usually invest a set amount in euros. You can purchase mutual funds through a brokerage firm or directly from the issuer. Thus, the key is that the transaction is not instant.
ETFs, on the other hand, trade like stocks on major exchanges. Instead of a set dollar amount, you choose how many shares you want to buy. Because they are traded like stocks, ETF prices are constantly changing throughout the trading day. So, you can buy ETF shares whenever the stock market is open.
What is the Difference Between ETFs and Stocks?
ETFs are often composed of stocks or bonds, and a single ETF can hold more than 10 or even over 100 stocks. The value of an ETF is based on a weighted average of those holdings. Yet, the share price represents the market valuation of the company. There are some other notable differences:
- Individual stocks are more volatile (and therefore riskier): A particular stock is inherently more volatile than a group of stocks. It is not uncommon for a stock to rise or fall by 50% in a year, whereas this is also not uncommon for an ETF.
- Individual stocks require more work: Investing in ETFs requires less work than investing in individual stocks. Each company has its own questions and concerns to analyze, which takes time and effort.
- Individual stocks do not charge an expense ratio: In contrast, an ETF charges a fixed expense ratio, with a fee expressed as a percentage of your invested funds.
ETFs: Key Terms
Before we get into ETF trading, let’s clear up some basic terms you should know.
- Passive and Active ETFs: There are two basic types. Passive ETFs (also known as index funds) track a stock index such as the S&P 500. Active ETFs hire portfolio managers to invest their money on their behalf. Passive ETFs, therefore, aim to match the performance of the index. Active ETFs seek to outperform the index.
- Expense ratios: ETFs charge fees called expense ratios. The expense ratio is given as an annual percentage. For example, an expense ratio of 1% means that for every $1,000 you invest, you will pay $10 in expenses. All things being equal, you will save money with a lower expense ratio.
- Tracking error: ETFs cannot be expected to deliver returns identical to those of an index (such as the Dow Jones Industrial Average).
How to Buy ETFs?
ETFs are traded on exchanges like common stocks. Here are some steps to start investing:
1. Decide Which ETF You Want to Invest In
There are many different ETFs available on the market today. When researching, keep in mind that ETFs differ from individual securities, such as stocks or bonds. When deciding on an ETF, consider the big picture in terms of sector or industry. To help you make your decision, you can ask yourself the following questions:
| ✅ What is your investment time frame? |
| ✅ Are you investing for income or growth? |
| ✅ Are there any sectors or financial instruments that excite you? |
Examples of popular ETFs:
| ✅ SPDR S&P 500 (SPY) – Spider is the oldest and most well-known ETF that tracks the S&P 500 index. |
| ✅ IShares Russell 2000 (IWM) – tracks the Russell 2000 small-cap index. |
| ✅ Invesco QQQ (QQQ) – Cubes tracks the Nasdaq 100 index, which typically includes technology stocks. |
| ✅ SPDR Dow Jones Industrial Average (DIA) – Diamonds represent 30 stocks in the Dow Jones Industrial Average. |
2. Decide on an Investment Strategy
It’s worth noting here that you don’t need to invest much to get started. The best brokers these days allow you to buy stocks with no trading commission. This means you can find a share of an ETF or a fraction of a share for just a few pennies. Over time, you build wealth by continuing to add money to the market. That’s how you’ll eventually learn which strategy works best for you.
If you’re a beginner, a good trading strategy is dollar-cost averaging. There, you invest a set amount at regular intervals (for example: $50 every week) regardless of market sentiment. This is because it averages out your returns over time and provides a disciplined (as opposed to a random or volatile) approach to investing. It also helps novice investors learn more about the nuances of investing in ETFs. As they become more skilled at trading, investors can move on to more challenging strategies (such as swing trading).
3. Open a Trading Account
To buy or sell ETFs, you need a brokerage account. Most online brokers now offer commission-free trading of stocks and ETFs, so price is not a factor. It is best to compare the features and platforms of each broker. If you are a new investor, it may be a good idea to choose a broker that offers a wide range of educational features. There are many trading platforms, and some of the more popular ones in Europe are: eToro, Vanguard Group, Fidelity Investments…
4. Close the Deal
The process of buying ETFs is very similar to the process of buying stocks. Go to the trading section of your platform’s website. Then, you will buy the ETF using its ticker symbol, similar to stocks and cryptocurrencies. Below are the basic terms of ETF trading for your understanding:
- Ticker symbol: The unique identifier of the ETF you want to buy. Make sure you have the correct one before proceeding.
- Price: The current trading price is determined by bid (the highest price buyers are willing to pay) and ask (the lowest price sellers will accept in exchange).
- Number of shares: The number of shares you want to buy.
- Order type: Market order (buy as soon as possible at the best available price), Limit order (buy only at a certain price or lower), Stop order (buy when a certain price is reached and you complete the order), Stop-limit order (When the stop price is reached, the trade becomes a Limit order and is filled to the point where certain price limits can be met).
- Commission: The price per transaction that the platform will charge for the service. Most major brokerages now offer ETF trading without commission.
You can double-check before placing an order to make sure everything is “just right”. Make sure your order is placed as intended: check the symbol (sometimes ETFs have very similar symbols), the order type, and whether you made a “fat finger” error – for example, you entered 5,000 shares when you only intended to buy 500.
5. Congratulations, Your Investment Portfolio Contains an ETF
ETFs are part of a well-diversified portfolio and serve as a first step towards long-term investment in the markets. You don’t have to check the price performance of an ETF constantly, but you can access this information when needed by checking the symbol on your broker’s website or typing it into your browser.
Types of ETFs
As we mentioned earlier, there is a wide range of ETFs, and you can choose the ones that best suit your interests and expertise or are simply ideal for a specific part of your portfolio. Here are some popular types:
Bond ETFs
This type is used to provide investors with regular income. Their income distribution depends on the performance of the underlying bonds. These can include government bonds, corporate bonds, and state and local bonds called municipal bonds.
Equity ETFs
This is a basket of stocks that track a particular industry or sector. For example, an equity ETF might track auto stocks or foreign stocks. The goal is to provide diversified exposure to a single industry that includes both established and new entrants with growth potential.
Industry or sector ETFs
They focus on a specific sector. For example, an energy sector ETF includes companies operating in that sector. The idea behind sector ETFs is to gain exposure to the ups and downs of that industry by tracking the performance of companies operating in that sector.
Commodity ETFs
As the name suggests, commodity ETFs invest in commodities, including crude oil or gold. Their primary function is to diversify a portfolio and thus provide protection against downside. Second, holding shares in a commodity ETF is cheaper than physically owning the commodity, as there are no insurance or storage costs.
Currency ETFs
This is a type of ETF that tracks the performance of currency pairs consisting of domestic and foreign currencies. Currency ETFs serve several purposes. They can be used to speculate on currency prices based on political and economic events in countries.
Leveraged ETFs
A leveraged ETF seeks to achieve a return that is a multiple (e.g. 2x or 3x) of the return of the underlying investment. For example, if the S&P 500 rises 1%, a 2x leveraged S&P 500 ETF will return 2% (but if the index falls 1%, the ETF would lose 2%). These products use derivatives such as options or futures to increase their returns. Of course, they come with higher risk.
Conclusion
Investing is a cost-effective way to gain exposure to a broad basket of securities on a limited budget. Investing in ETFs is practically the same as investing in stocks. In addition, major online brokers have reduced trading fees for these investments to zero. The concept is only a few decades old. Still, due to good portfolio diversification, a wide selection of sectors, and the relative safety of investing in a “basket” of a few stocks, it is part of many successful traders ‘ portfolios. If you’re willing to take a bit more risk, we suggest considering an investment in cryptocurrencies.
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FAQ
How does an ETF fund work?
An ETF provider creates an ETF based on a specific methodology and sells shares of that fund to investors. The provider then buys and sells the securities that make up the ETF portfolio.
What is the difference between ETFs and stocks?
Instead of purchasing individual stocks, an investor can simply buy shares of a fund that is intended to represent a representative cross-section of the broader market.
Is an ETF a good investment?
ETFs are considered low-risk investments because they are inexpensive and contain a basket of stocks or other securities, which increases diversification. For most people, they are therefore an ideal type of investment that can be used to form a diversified portfolio.
How can I invest in an ETF fund?
Buying ETFs is simple and done in a similar way to stocks. First, you open an account with a broker, choose your ETF after careful analysis, and buy it.
Is it wise to invest in cryptocurrencies?
Investing in virtual currencies is investing in the future. Of course, it is not easy to invest wisely in something that is unknown to many. That’s why we at the Joker.gg portal have created a series of articles that you can use to educate yourself and expand your knowledge about cryptocurrencies.
