Funds Beginner: Introduction to Exchange-Traded Funds

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1.
When can you buy exchange-traded funds?
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Anytime during the trading day. As opposed to mutual funds, which are sold at the end of the day no matter when during the day you place your order, you can buy exchange-traded funds at any time during the day.
2.
Which statement is true about exchange-traded funds (ETFs)?
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The arbitrage mechanism that keeps ETFs' prices in line with their NAVs should work most of the time. Differences between an ETF's price and its NAV can occur with those ETFs that aren't traded very often. Also, it's unclear how well the arbitrage mechanism will work during a full-fledged market correction.
3.
What are exchange-traded funds?
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Baskets of securities that are traded on an exchange. ETFs are part mutual fund, part stock.
4.
How do investors buy and sell most exchange-traded funds?
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Through a broker. Because these shares trade on an exchange, investors have to go through a broker to buy and sell shares. Only the very wealthy can sell shares back to the sponsoring fund family. And when they do, they won't get cash back, but shares of the ETF's underlying holdings.
5.
Exchange-traded funds are always cheaper to buy than mutual funds.
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False. If you trade frequently, ETFs will likely be more expensive than mutual funds, due to the commissions.