What Is an Exchange-Traded Product (ETP)?

What Is an Exchange-Traded Product (ETP)?

Let me explain what exchange-traded products are: they are financial securities that track underlying securities, an index, or other financial products. You can buy and sell ETPs on exchanges just like stocks, and their share prices fluctuate throughout the trading day. The prices of ETP shares come directly from the underlying investments they track.

Types of Exchange-Traded Products (ETPs)

Exchange-traded products can be benchmarked to various investments, including commodities, currencies, stocks, and bonds. They might contain just a few or hundreds of underlying investments. I'll cover the main types of ETPs available on the market.

Exchange-Traded Funds (ETFs)

An exchange-traded fund (ETF) is a basket of investments that can include stocks and bonds. It usually tracks an underlying index, such as the S&P 500, but it can also follow an industry, sector, commodity, or currency. The price of an ETF can rise and fall like other investments, and ETFs trade throughout the day.

Since ETFs are often passively managed, they come with low fees, which makes them popular among investors. For instance, a passively managed ETF might track the S&P 500 index and hold all the stocks listed on it, though some like Vanguard's S&P 500 ETF hold slightly more or less— it held 505 stocks on April 30, 2025, while the S&P 500 listed 504.

In January 2024, the Securities and Exchange Commission approved the first Bitcoin Spot ETFs, allowing fund managers to hold Bitcoin and offer exchange-traded shares to investors on official exchanges.

In an actively managed ETF, the fund manager maintains performance by replacing underperformers with better ones, which can lead to higher fees due to the manager's time and trading costs. Some ETFs combine passive and active attributes, acting as hybrid vehicles that merge actively managed mutual funds with ETF trading flexibility.

Exchange-Traded Notes (ETNs)

Exchange-traded notes (ETNs), like ETFs, generally track an underlying index and trade on major exchanges. They are issued as unsecured debt securities, like bonds, which pay back the original invested amount or principal at maturity along with any generated returns.

ETNs do not pay periodic interest payments, known as coupon payments. Therefore, whether investors get back the principal and returns from the underlying index depends on the issuer's creditworthiness.

Different tax treatments apply to various types of ETPs, so you should speak with a tax professional about any potential tax ramifications from investing in them.

Exchange-Traded Commodities (ETCs)

Exchange-traded commodities (ETCs) are financial instruments designed to give you exposure to commodity prices. They can be structured as either ETFs or ETNs and are traded on stock exchanges, allowing you to access and trade them easily, just like individual stocks.

The underlying assets of ETCs typically include precious metals, agricultural products, energy resources, or combinations of these. With ETCs, you can buy and sell commodities without actually holding or owning the physical assets, letting you capitalize on specific commodities, indexes, or futures contracts without storage concerns.

Exchange-Traded Products vs. Mutual Funds

Mutual funds are typically priced at the end of the trading day when orders are filled, while ETP shares trade like stocks with price movements throughout the day. For example, you can place a buy or sell order for an ETF share at a specific price with a broker or buy it in the morning and sell by the end of the day.

Mutual funds can be purchased and sold during the day but aren't priced until the market closes. ETPs also often have lower expense ratios than mutual funds. However, differences in bid and ask prices could add to the cost of trading ETPs, whereas some no-load mutual funds can be bought and sold without trading commissions.

Pros and Cons of Exchange-Traded Products (ETPs)

On the positive side, ETPs offer you access to many securities and indices, serve as a low-cost alternative to mutual funds and actively-managed funds, and are highly popular, which provides additional liquidity.

On the downside, there's a risk of market losses since their prices fluctuate, and they come with varying trading volumes that can affect liquidity.

Real-World Example of an ETP

The largest ETF in the marketplace is the SPDR S&P 500 ETF (SPY), with assets of about $604 billion as of May 2025. It owns shares of 504 stocks listed on the S&P 500. The top five holdings are Microsoft, NVIDIA, Apple, Amazon, and Meta.

How Do Exchange-Traded Products Differ From Traditional Investment Options?

ETPs differ from traditional options like mutual funds in their structure and tradability. Their shares trade on stock exchanges throughout the day at market prices, providing intraday liquidity and flexibility. Traditional options often involve buying or selling at the end of the day at the NAV price. Additionally, ETPs can track various indices, commodities, or currencies for more targeted strategies.

Are ETPs Traded on Stock Exchanges?

Yes, ETPs are traded on stock exchanges, meaning you can buy and sell their shares throughout the trading day at market prices. This environment enhances liquidity and provides real-time pricing.

How Do Leveraged and Inverse ETPs Work?

Leveraged ETPs aim to magnify the returns of an underlying index or asset class using financial derivatives and debt. Inverse ETPs seek to provide the opposite performance of the underlying index. These are for sophisticated investors looking to capitalize on short-term market movements.

What Are the Risks Associated With Investing in ETPs?

Investing in ETPs carries risks like market risk, liquidity risk, tracking error, and risks tied to the underlying assets. Market conditions, geopolitical events, and interest rate changes can impact performance. In many ways, an ETP faces risks similar to a stock, including business-related vulnerabilities.

The Bottom Line

ETPs are financial instruments traded on stock exchanges that give you exposure to diverse asset classes like stocks, bonds, commodities, and currencies. They can be ETFs, ETNs, ETCs, or other structured products. Remember, the information here is for informational purposes; check our warranty and liability disclaimer for more details.