What is an ETF?

Say an ETF holds 100 stocks and one share of it trades at $80. With $800 you buy 10 shares and own a small slice of all 100 companies at once. If the stocks in the fund rise 5% in total, your 10 shares rise about 5%, to about $840.

The fund charges a yearly fee known as the expense ratio. At 0.10%, that is about $0.80 a year on $800. It is taken out of the fund's value a little at a time, so you never see a bill.

On JagSim, funds trade exactly like stocks: in whole shares, during US market hours, with market, limit and stop orders. You can practice with well-known index ETFs such as SPY, QQQ, IWM and DIA, and the index ETF page lists more. Pro shows the 10 largest holdings of SPY, VOO, VTI, QQQ and SCHD, so you can see what one share of each fund owns. Prices are real, so a fund's yearly fee is already in its price, as at a real broker; JagSim charges no fee or commission on any trade.

One ETF share can spread your money across hundreds of companies, which is why ETFs are a common first holding. But a fund is only as diversified as what it holds: a fund of one industry rises and falls with that industry.

What is the difference between an ETF and a mutual fund?

Both pool money into a basket of investments. An ETF trades on an exchange all day at a market price. A mutual fund is bought from the fund company once a day, at the price set after the close.

Is an ETF the same as an index fund?

Not always. Many ETFs track an index and many index funds are ETFs, but some ETFs are actively managed and some index funds are mutual funds.

Can an ETF lose money?

Yes. A broad ETF spreads your money across many companies, so one company's bad news hurts less, but the fund still falls when its market falls.

What is an expense ratio?

The yearly fee a fund charges, as a percentage of what you hold in it. It is taken out of the fund's value, so it shows up as a slightly lower return rather than a bill.