ETFs and indices · updated October 21, 2026
What is an ETF and how does it work
An ETF is a fund you buy and sell on the stock exchange just like a stock, but behind it sit dozens, hundreds or thousands of companies. With a single trade you buy, for example, all 500 companies in the S&P 500.
How it is calculated
The fund usually tracks an index: it buys the companies in the index in the same proportions and adjusts when the index changes. An ETF's price rises and falls with the value of the companies inside it. The cost is the annual fee (TER), taken automatically from the fund's value.
Worked example
You buy an S&P 500 ETF for $1,000, with an annual fee (TER) of 0.07%.
With the same amount, buying the stocks one by one, you would pay hundreds of times more in fees.
When ETF can fool you
Not every ETF is diversified: some track a single sector, a single country, or use leverage. Check which index it tracks before you buy.
Related terms
Questions about ETF
ETF or individual stocks?
For a beginner, a broad ETF (on the S&P 500 or the whole world) is the simplest way to start: one product, low cost, risk spread across hundreds of companies.
Do I get dividends from an ETF?
Yes. "Distributing" ETFs pay out the companies' dividends, while "accumulating" ones reinvest them automatically.
These explanations are for information only. They are not a recommendation to buy or sell.
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