How ETFs trade

Even though ETFs (exchange traded funds) are trusts that are similar in structure to a mutual fund, ETFs can be traded just like stocks. You enter buy and sell orders for ETFs with your broker just like you would for a stock.

Mutual funds have their net asset value updated once every day (at market close), but ETFs can change in value throughout the trading day, just like the prices of a common stock. As a result, the net asset value of, say, an index ETF that tracks the performance of the S&P/TSX Composite Index would tend to reflect the value of that underlying index throughout the day, whereas the equivalent mutual fund holding the same basket of stocks would only reflect that value once each day.

Unlike mutual funds, ETFs can be sold short and have lower margin requirements.

ETFs may also offer more liquidity than mutual funds – since they are bought and sold just like a stock, more active traders can take and exit positions in certain ETFs throughout the trading day. By watching market data on ETF trades, it is also possible to see which brokerages are buying and selling shares of an ETF. This means that the market for ETFs is more transparent than that of mutual funds, since it’s possible to see ETF transactions on an exchange in the same way you can see stock transactions on other exchanged traded securities.