What are 'Exchange Traded Products – ETP'

Exchange-traded products (ETP) are a type of security that is derivatively priced and trades intra-day on a national securities exchange. ETPs are priced so the value is derived from other investment instruments, such as a commodity, a currency, a share price or an interest rate. Generally, ETPs are benchmarked to stocks, commodities or indices. They can also be actively managed funds. ETPs include exchange-traded funds (ETFs), exchange-traded vehicles (ETVs), exchange-traded notes (ETNs) and certificates.

BREAKING DOWN 'Exchange Traded Products – ETP'

The ETP that is the most popular is the ETF. ETFs are securities that track an index, commodity or basket of assets. ETNs, on the other hand, are a type of unsecured, unsubordinated debt security. The value of an ETN can be affected by the credit rating of the issuer and not just changes in the underlying index.

ETPs have experienced huge growth since they were introduced. Different tax treatment applies to the various types of ETPs.

Exchange-Traded Products vs. Mutual Funds

ETPs such as the ETF were developed out of the desire to create a fund that had more flexibility than the mutual fund. Mutual funds are typically priced just once at the end of the trading day, but ETFs trade like stocks and can be bought and sold throughout the day. ETPs often carry slightly lower expense ratios than their mutual fund counterparts. The largest ETF in the marketplace is the SPDR S&P 500 ETF, with assets of more than $254 billion as of May 2018.

ETPs also require a brokerage account to trade, so buying and selling ETP shares is likely to result in brokerage commission costs. Additionally, differences in the bid price and ask price of a security could add to the cost of trading in ETPs. Many no-load mutual funds, on the other hand, can be bought and sold without any trading commission, and they do not require a brokerage account.

Growth of Exchange-Traded Products

Since the debut of the first ETF in 1993, these funds and other ETPs have grown significantly in size and popularity. In 2017, ETFs claimed roughly $4.8 trillion in total assets under management (AUM), according to ICI.org.

The low-cost structure of ETPs has contributed to their popularity. Many ETPs are lower-cost index funds, which continue to attract assets away from potentially higher-cost actively managed funds. However, the amount of money being pulled out of actively managed funds dwindled in 2017 after several years of more substantial outflows. Passively managed funds gained around $464 billion in net asset inflows in 2017, while actively managed funds saw net outflows of $7 billion during the same period, according to Morningstar. In recent years, actively managed funds had seen outflows in the hundreds of billions.

RELATED TERMS
  1. Stock Exchange-Traded Fund (ETF)

    A stock exchange-traded fund (ETF) is a security that tracks ...
  2. Index ETF

    Index ETFs are exchange-traded funds that seek to track a benchmark ...
  3. NYSE Arca

    NYSE Arca is an electronic securities exchange in the U.S. on ...
  4. Cross Hedge

    A cross hedge is used to manage risk by investing in two positively ...
  5. Actively Managed ETF

    An active managed ETF is a form of exchange-traded fund that ...
  6. Commodity ETF

    A commodity ETF is an exchange-traded fund that invests in physical ...
Related Articles
  1. Investing

    Why The Bull Market is Alive and Well for ETFs

    Money floods into U.S. exchange-traded products as it flows out of U.S. equity mutual funds
  2. Investing

    No Surprise: VIX ETPs Aren't Great Long-Term Ideas

    Volatility ETNs are dangerous, expensive products best used over the short term, if at all.
  3. Investing

    Investing in Exchange Traded Notes (ETNs)

    ETNs sound like ETFs, but investors should take note of some important differences.
  4. Investing

    ETF Inflows Continue Assault on Record Books

    ETFs continue adding assets at a record pace, even during the supposedly slow summer months.
  5. Investing

    ETFs Are Trouncing Previous Inflows Records

    ETFs are gathering assets at a staggering pace, with bond and equity funds leading the way.
  6. Investing

    These ETFs Are Loving Low Volatility

    Equity market volatility is plunging. There are different ways to play that theme.
  7. Investing

    For More And More Investors, ETFs Are A Godsend

    Average and cautious investors can experience lower risk with ETFs - a safer alternative to swaps and derivatives.
  8. Investing

    How to Choose Between Mutual Funds and ETFs

    Mutual funds and ETFs are both investment funds, but they are not as similar as you might think.
RELATED FAQS
  1. What exactly is an ETF portfolio?

    Learn what exchange-traded funds (ETFs) are and their advantages to investors, what a portfolio of ETFs is, and discover ... Read Answer >>
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center