What is a spider and why should I buy one?

By Casey Murphy AAA
A:

The term spider is the commonly-used expression to describe the the Standard & Poor's Depository Receipt (SPDR). This type of investment vehicle is an exchange-traded fund (ETF). You can think of an ETF as a basket of securities (like a mutual fund) that trades like a stock. In the case of spiders, the basket of stocks is the S&P 500 index. One of the reasons for buying a SPDR is that it is a quick and easy way to have significant diversification. SPDRs are also relatively inexpensive compared to what it would cost to create this type of portfolio yourself.

SPDRs contain one-tenth of the S&P 500 index portfolio, which is why the cost to buy one unit of this asset is nearly equal to one-tenth of the S&P 500 index level. SPDRs trade on the American Stock Exchange (AMEX) under the symbol SPY. Like all ETFs, they trade in the same manner as regular stocks having continuous liquidity and provide regular dividend payments. This type of investment is ideal for those who believe in passive management, a strategy that attempts to mirror a market index with no desire to try and beat the market. See our Special Feature: Exchange-Traded Funds for everything you need to know about ETFs.

For more on index investing, check out Index Investing Tutorial, Introduction To Exchange-Traded Funds and Advantages Of Exchange-Traded Funds.

RELATED FAQS

  1. What types of stocks have a large difference between bid and ask prices?

    Find out which factors influence bid-ask spread width. Learn why some stocks have large spreads between bid and ask prices, ...
  2. What are the most common leveraged ETFs that track the drugs sector?

    Discover the most common leveraged exchange-traded funds that investors can use for magnified results in the pharmaceutical ...
  3. Why would an investor consider purchasing electronic stocks for their portfolio?

    Discover why an investor would consider buying electronics securities as part of an investment portfolio and which stocks ...
  4. What is the automotive sector?

    Explore the automotive sector, which includes manufacturers, retailers, wholesalers and original equipment manufacturers, ...
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Lion economies

    A nickname given to Africa's growing economies.
  3. Factor Investing

    An investment strategy in which securities are chosen based on ...
  4. Reverse Gold ETF

    Exchange traded funds that are designed to trade in a direction ...
  5. Investment Fund

    A supply of capital belonging to numerous investors that is used ...
  6. Short Gold ETF

    An exchange traded fund that seeks to profit from negative changes ...

You May Also Like

Related Articles
  1. Mutual Funds & ETFs

    Is the PowerShares (PFEM) ETF a Good ...

  2. Chart Advisor

    Invest in Japan with this ETF

  3. Chart Advisor

    ChartAdvisor for April 24 2015

  4. Mutual Funds & ETFs

    Anatomy of Emerging Markets Debt ETF ...

  5. Mutual Funds & ETFs

    Financial Bear 3X (FAZ): Bull in a Bear ...

Trading Center