Here’s a little history lesson for you: Launched in 1993, the first exchange traded fund (ETF) was an equity fund, a basket of stocks that reflected an index. The first bond ETF started trading nearly a decade later. The introduction of the bond ETF may not seem like a big deal, but it was because of how different stocks and bonds are.
Stocks
Stocks trade on an exchange. Their prices are publicly available throughout the day. There is generally an active secondary market for most stocks, meaning that buyers can typically find sellers and sellers can typically find buyers. Everyone in the market can see at what price they can buy or sell a stock at a given point in time.
Bonds
Bonds trade over-the-counter (OTC). Prices are negotiated privately between buyers and sellers. It can be hard for an investor to find the bonds that they want to buy and it can be difficult to get a price on the bonds they want to sell. It can also be difficult to find information on where bonds are trading in order to get a sense of what a fair buy or sell price should be.
Stock ETFs and bond ETFs, on the other hand, actually have quite a few things in common. Both typically seek to track an index, both trade on a stock exchange and both give investors exposure to a diversified portfolio of securities in one trade. But there are two key differences.
Two Key Differences