Exchange Traded Notes - ETN

AAA

DEFINITION of 'Exchange Traded Notes - ETN'

A type of unsecured, unsubordinated debt security that was first issued by Barclays Bank PLC. This type of debt security differs from other types of bonds and notes because ETN returns are based upon the performance of a market index minus applicable fees, no period coupon payments are distributed and no principal protections exists.

INVESTOPEDIA EXPLAINS 'Exchange Traded Notes - ETN'

The purpose of ETNs is to create a type of security that combines both the aspects of bonds and exchange traded funds (ETF). Similar to ETFs, ETNs are traded on a major exchange, such as the NYSE during normal trading hours. However, investors can also hold the debt security until maturity. At that time the issuer will give the investor a cash amount that would be equal to principal amount (subject to the day's index factor).

One factor that affects the ETN's value is the credit rating of the issuer. The value of the ETN may drop despite no change in the underlying index, instead due to a downgrade in the issuer's credit rating.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  4. Exchange Traded Products – ETP

    A type of security that is derivatively-priced and which trades ...
  5. Debt Security

    Any debt instrument that can be bought or sold between two parties ...
  6. Structured Note

    A debt obligation that also contains an embedded derivative component ...
RELATED FAQS
  1. What is the best ETN for trading mid-cap stocks?

    Exchange-traded notes (ETN) are different from exchange-traded funds (ETF) in that their values are not backed by actual ... Read Full Answer >>
  2. What does it mean to invest in base metals?

    Portfolio diversification is a necessity for most investors; it provides a smart way to spread out the risk associated with ... Read Full Answer >>
  3. For investors, what are the alternatives to owning physical gold?

    Some of the many alternatives investors have to purchasing physical gold include investing in gold futures, gold ETFs, gold ... Read Full Answer >>
  4. Are ETFs subject to the short sale uptick rule?

    Mutual fund use and development has increased rapidly ever since they were first introduced in the early 1920s. In the United ... Read Full Answer >>
  5. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  6. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Exchange Traded Notes: An Alternative To ETFs

    ETNs offer yet another way to track an index. Find out what they have to offer, and what's at stake.
  2. Mutual Funds & ETFs

    Finding Fortune In Foreign-Stock ETFs

    Think beyond your borders to reduce the impact of local market downturns.
  3. Mutual Funds & ETFs

    Active Vs. Passive ETF Investing

    You can use these securities for more than just indexing. Explore the spectrum of possible ETF strategies.
  4. Options & Futures

    Uncovering The ETF Wrap

    Tax benefits, low expense ratios and flexibility - discover the advantages of this managed money product.
  5. Mutual Funds & ETFs

    The VIX: Using The "Uncertainty Index" For Profit And Hedging

    Learn the best ways to profit and hedge using the Chicago Board Options Exchange Market Volatility Index.
  6. Mutual Funds & ETFs

    ETN Credit Risk May Outweigh Benefits For Some

    Exchange-traded notes have many benefits, but they may not be suited to risk-averse investors.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares S&P 500

    Find out more about the iShares Core S&P 500 Exchange Traded Fund, the characteristics of this ETF and the suitability of the iShares Core S&P 500 ETF.
  8. Mutual Funds & ETFs

    ETF Analysis: Market Vectors Russia

    Learn about Market Vectors Russia ETF, its top holdings, as well as cyclical and political risks associated with investing in the Russian market.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Emerging Markets

    Learn more about the most liquid and highly traded emerging market ETF in the world -- the iShares MSCI Emerging Markets ETF (EEM).
  10. Bonds & Fixed Income

    What are Floating-Rate Notes?

    A floating-rate note is a debt instrument with an interest rate that “floats,” or varies. They are also called floaters.

You May Also Like

Hot Definitions
  1. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  2. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  3. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  4. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  5. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
  6. Himalayan Option

    An exotic equity option belonging to a class known as mountain range options. Himalayan options are based on a basket of ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!