ETF, is an abbreviation of the English term “Exchange Traded Fund” and Turkish “Stock Exchange Investment Fund” means. An ETF is a financial instrument that offers investors the opportunity to track a specific index, sector, commodity, or group of assets in a single transaction.

ETFs, like stocks, are traded on the stock exchange and are therefore easy to buy and sell. But unlike an investment fund, its prices change constantly throughout the day. With this feature, ETFs offer both a simple and effective investment option for investors.

Operating Logic of ETFs

ETFs invest in a specific group of assets by combining money raised from investors into a pool. These assets can be:

• Stocks
• Bonds
• Commodities (e.g. gold, oil)
• Indices (e.g. BIST 100, S&P 500)

An ETF usually tracks a specific target index or sector. For example, BIST 100 ETFaims to reflect the performance of the shares in the Borsa Istanbul 100 index.

ETFs are priced according to the value of the assets they hold, and these prices are constantly updated during exchange transactions.

Structure of ETFs

1. Creative and Redemption Mechanism
   ETFs are created by financial institutions known as “creative.” These entities buy the assets tracked by the ETF and pool them in a pool. It then offers these assets as ETF units that are open to investors.
2. Share of an ETF
   An ETF share gives the investor indirect ownership of the assets within that ETF. However, the investor is not the direct owner of these assets; he only benefits from the performance of the ETF.
3. Open and Transparent Structure
   The content and asset allocation of many ETFs are disclosed daily, so investors know exactly what they are investing in.

Types of ETFs

ETFs are diversified according to different investment needs and goals. Here are the most common types of ETFs:

1. Index ETFs: It tracks a specific market index (for example, the S&P 500 or BIST 100).
2. Sector ETFs: It invests in companies in certain sectors, such as technology, health, energy.
3. Commodity ETFs: It monitors the price of gold, oil or other commodities.
4. International ETFs: It invests in companies in a particular country or region.
5. Bond ETFs: It covers government or corporate bonds.

Trading of ETFs

ETFs are traded on exchanges like stocks. This offers investors the following advantages:

• Intraday Trading: ETFs can be bought and sold at instant prices as long as the market is open.
• Market Price: The price of an ETF varies continuously throughout the day based on market demand.

When an investor buys an ETF, he or she is indirectly investing in the performance of all the assets that that ETF contains.

Who Uses ETFs?

ETFs are suitable for both individual and institutional investors.

• Individual Investors: Those who want to build a diversified portfolio with less cost.
• Institutional Investors: Professionals who want to make large-scale investments that follow the indices.

ETFs are an easy and accessible starting point, especially for people who are new to the world of investing.

Conclusion:
ETFs stand out as a flexible, transparent and effective tool in the investment world. Understanding the principle and structure of an ETF is a critical step to achieving your investment goals. Investment Desk Academy At, we continue to present information about the world of finance in the most straightforward and effective way. 😊

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