ETFs: 2025 Intern’s Ultimate Financial Tool

Today, we delve into the world of Exchange-traded funds (ETFs), one of the most successful financial innovations in the last 30 years. In the U.S. alone, there are over 4,000 ETFs with assets totaling over $10 trillion. ETFs are a hybrid of mutual funds and stocks, allowing investors to trade a managed portfolio of securities like a stock. Most ETFs are structured as mutual funds, with the key difference being the ability to trade ETFs on the stock market throughout the day. This allows for easier buying and selling of ETFs at current market prices.

ETFs have evolved beyond traditional index funds to include actively managed portfolios, offering investors a wide range of options from bonds to international stocks and even commodities. ETFs are heavily traded by hedge funds, banks, and market makers due to their low trading costs and effective hedging capabilities. Despite being U.S.-listed stocks, ETFs offer exposure to various asset classes including bonds, commodities, and overseas stocks.

Arbitrage plays a crucial role in maintaining the price of ETFs close to their benchmark index. Arbitrageurs and market makers efficiently keep ETFs accurately priced through creation and redemption mechanisms. These mechanisms allow arbitrageurs to lock in profits and reduce their positions, making arbitrage cheaper and more efficient. Ultimately, ETFs provide investors with a cost-effective and efficient tool to access diversified and professionally managed exposures to various assets.

Read more at Nasdaq: The 2025 Intern’s Guide to ETFs