What follows is a transcript of the video above.
Let’s Try a Practice Question
Which of these options is Debt Security?
A. ETF
B. ETN
C. Open End
D. Closed End
The correct answer here would be B.
What Are ETN’s?
An ETN, or exchange traded note, is a short-term-one year. It provides a return of principle with a kicker based on the market performance and credit risk. You are subject to that paying ability of the broker-dealer who sold this. If you buy one of these from a broker-dealer, and they go bankrupt, what are you? A creditor, and you hold a note.
What Is an ETF?
Is an ETF, or exchange traded fund, a debt or equity-like security? It is more equity-like. You own a slice of a portfolio, all the shares in an index. Luckily there is no big credit risk in this situation. If you hold the S&P500 ETF of a company that files for bankruptcy, you still own a piece of that portfolio; these are actual shares that you own a tiny sliver of.
How Do You Trade ETF’s?
Shares of ETFs trade like stocks, A buyer must buy ETF’s after 4 pm EST. There is an aftermarket, but a buyer can also buy all day long. Can a buyer buy a share of a mutual funds all day? No, they need to wait. How long do I need to wait? A buyer can buy it on the exchange, buy at the offer, and sell at the bid. Whereas the NAV calculation is a forward pricing mechanism. Which is Closed-End more like? The Open End or the ETF? It is more like the ETF. And the Open End is a special type.
