What is a key feature of an exchange-traded fund?

A key feature of an exchange-traded fund (ETF) is that it is traded similar to individual stocks. This means that investors can buy and sell shares of an ETF on an exchange throughout the trading day, just as they would with stocks. The price of the ETF fluctuates throughout the day based on supply and demand, allowing for real-time trading opportunities. This characteristic makes ETFs highly liquid and flexible investment options compared to mutual funds, which are typically only priced at the end of the trading day.

The ability to trade ETFs like stocks enables investors to employ various strategies, including intraday trading, which can be advantageous for those looking to respond quickly to market movements. This feature is a significant reason why many investors prefer ETFs for both diversification and liquidity in their portfolios.