CISI Professional Practice Exam 2026 – Complete Prep Guide

Exchange-traded funds (ETFs) have distinct features that make them an attractive investment choice. One of the primary characteristics is that they trade on exchanges just like individual stocks. This means that investors can buy and sell ETFs throughout the trading day at market prices, providing them with high liquidity. Liquidity is a significant advantage, as it allows investors to react quickly to market changes and facilitate easy entry and exit points.

Additionally, ETFs typically offer diversification because they hold a basket of securities, which can include stocks, bonds, or other assets. This diversification helps to mitigate risk compared to investing in single securities, as the performance of an ETF is based on the collective performance of all the assets within it.

In contrast, the other options do not align with the fundamental principles of ETFs. The nature of ETFs allows for both short-term and long-term investments, they are widely available through various brokers and not limited to mutual fund companies, and they do not guarantee a fixed return, as their performance is contingent on market conditions and the assets they hold.