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The Difference Between ETFs & Mutual Funds
Mutual funds and ETFs have similarities as well as differences
Published May 19, 2024.
In the fast-paced arena of trading, ETFs and mutual funds emerge as the top two key players, each with its unique allure and advantages. Exchange-traded funds (ETFs) are a form of security that tracks an index, group of instruments, or commodity but trades like a stock on an exchange.
Mutual funds, on the other hand, are a type of investment that pools money from various investors to purchase stocks, bonds, and other securities.
Note: Fortrade offers the ability to trade the price changes of instruments with CFDs and NOT to buy/sell ownership of the instrument itself.
» New to trading? Check out our guide to CFD stock trading for beginners
ETFs vs Mutual Funds
| | ETFs | Mutual Funds |
|---|---|---|
| Exposure | Relatively high | Relatively high |
| Risk potential | Relatively low | Relatively low |
| Minimum capital | Low | Relatively low but could be subject to a minimum investment |
| Trading structure | Traded multiple times a day, similar to stocks | Traded once per day at the closing bell |
| Liquidity | High | Relatively high |
| Fees | Relatively low expense ratios | Slightly higher due to management fees/operational costs |
» Interested in CFDs? Learn the fundamentals of CFD stock trading
The Similarities
- Greater exposure Both options offer exposure to stocks, bonds, and other instruments, helping to diversify your account.
- Lower potential risk Since your funds will be spread across multiple instruments, it reduces the potential impact on your account of a single stock or instrument tanking.
- Low capital requirement/fees Both shares of ETFs and mutual funds can be traded for any amount of capital, though mutual funds might require a minimum investment.
- High liquidity Both ETFs and mutual funds are quite liquid and can be bought or sold on any business day when the market is open.
The Differences
- Trading structure ETFs trade just like stocks, while mutual funds only trade once a day at the closing bell.
- Fees ETF fees are generally quite low as most are passively managed to replicate a specific index, while mutual funds could be actively managed and incur a management fee.
» Ready to get started? Learn more about trading ETFs with Fortrade
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