How does an ETF differ from a mutual fund in terms of trading?

How does an ETF differ from a mutual fund in terms of trading?

• A. An ETF trades on an exchange like a stock throughout the day, often with lower expense ratios; a mutual fund trades once per day at its net asset value.
• B. An ETF trades only once per day; a mutual fund trades intraday.
• C. ETFs are unregistered; mutual funds are registered.
• D. ETFs have fixed returns; mutual funds vary.

Answer: (C)

Trading is the key difference between these two investment types. ETFs trade on an exchange throughout the day, like stocks, so their prices move intraday and you can buy or sell during market hours with limit or market orders. Mutual funds, by contrast, are bought and sold at one price set at the end of the day—the fund’s net asset value. That end-of-day pricing means you won’t see intraday price changes and you place trades at the daily NAV. Some related details help with understanding: ETFs may involve a bid-ask spread and broker commissions, but they often have lower ongoing expense ratios. Mutual funds don’t trade intraday and execute at the daily NAV, which is calculated after markets close. Both are registered investment products, so the statement that ETFs are unregistered isn’t accurate, and mutual funds aren’t traded intraday.

Trading is the key difference between these two investment types. ETFs trade on an exchange throughout the day, like stocks, so their prices move intraday and you can buy or sell during market hours with limit or market orders. Mutual funds, by contrast, are bought and sold at one price set at the end of the day—the fund’s net asset value. That end-of-day pricing means you won’t see intraday price changes and you place trades at the daily NAV.

Some related details help with understanding: ETFs may involve a bid-ask spread and broker commissions, but they often have lower ongoing expense ratios. Mutual funds don’t trade intraday and execute at the daily NAV, which is calculated after markets close. Both are registered investment products, so the statement that ETFs are unregistered isn’t accurate, and mutual funds aren’t traded intraday.