The Exchange Traded Fund (ETF) is a type of tradable security that can be purchased or sold on a stock exchange the same way a regular stock. ETFs track various indices, sector, commodities, real estate and other assets.
Equity market or stock exchange, also called securities exchange is a place where shares of pubic listed companies are traded. Usually under the watch of a securities and exchange commission, stock exchange facilitates stock brokers to trade company stocks and other securities such as bonds, treasury bills and derivatives.
On the other hand, stock or share is an ownership interest in one specific company. Ownership interest refers to the possession of equity in the capital, the stock, or the profits of an entity. While some ETFs consist entirely of equity stocks, an ETF and stock behave differently:
Stocks usually fluctuate more than ETFs. An individual stock usually moves around a lot more than an ETF does. That means you might make or lose more money on an individual stock than you would on an ETF.
ETFs are more diversified. By buying a stock ETF you’re taking advantage of the power of diversification, putting your eggs in many different stocks rather than just one stock or a few individual stocks. This helps reduce your risk over time.
Returns on a stock ETF depend on many companies, not just one. The performance of an ETF depends on the weighted average performance of its investments, whereas with an individual stock the return depends entirely on the performance of that one company.
Those differences are some of the most important between ETFs and stocks.