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Are ETFs considered derivatives?

No, ETFs are not considered derivatives. While ETFs “derive” value based on the holdings within the fund, ETFs themselves are not technically considered derivatives.

According to the SEC:
“Derivatives are financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security, or index.

For example, a stock option is a derivative because its value changes in relation to the price movement of the underlying stock.”

Derivatives are also often not traded on an exchange and instead are contracts between two or more parties based upon the price movements of the underlying assets. This is another part of what makes them different from stocks and ETFs.

Some of the most common derivatives include:

  • Options
  • Futures
  • Swaps

An ETF can be considered a place where investors can pool money, investing it with a specific mandate or style. These pools can include different asset classes, including stocks and bonds, real estate, commodities etc. They can sometimes include derivatives.

If you want to know whether the money invested in a particular ETF will be used to purchase derivatives, read the ETF’s prospectus (AKA objectives document).

You can find the prospectus of the ETF in their respective company’s website.

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