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Glossary of ETF Terms


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Aa

Advisor Class Unit
The Advisor Class Units that are listed by some ETF Providers (denoted by ".A" on the symbol) have been designed only for clients who are advised by a registered investment advisor and purchased through an advisor. The only difference between this class of units and the Common Unit, which has been designed to be purchased by institutional and individual investors, is the service fee component for the managed fees payable on the Advisor Class Unit.
Asset Class (Asset Allocation)
Investments can be divided into different categories such as stocks, bonds, cash equivalents or commodities. Dividing investments into the different asset classes is one method of diversifying a portfolio according to the investor's objectives, time horizon and basic risk tolerance level. The proportion of investment in different asset classes is referred to as asset allocation.

Bb

Basket
A group of several securities created for the purpose of simultaneous buying or selling.
Benchmark
An index that serves as a standard against which performance can be measured. For example, a broad, widely known index can be considered a benchmark and can be used to assess the performance of a fund or portfolio over time.
Bonds
Promissory notes issued by a corporation or government to its lenders, usually with a specified amount of interest for a specified length of time.

Cc

Call Option
An option which gives the holder the right, but not the obligation, to buy a fixed amount of a certain stock at a specified price within a specified time. Calls are purchased by investors who expect a price increase.
Capital Gains (or Losses)
Profit or loss resulting from the sale of certain assets classified under the federal income tax legislation as capital assets. This includes stocks and other investments such as investment property.
Commodities
Products used for commerce that are traded on a separate, authorized commodities exchange. Commodities include agricultural products and natural resources such as timber, oil and metals. Commodities are the basis for futures contracts traded on these exchanges.
Constituents
The components of a grouping. For example, the securities included in an equity index are considered the index's constituents.
Creation Units
Large blocks of tens of thousands of ETF shares which can be exchanged in-kind with baskets of the underlying securities when an ETF is initially established.

Dd

Day Order
An order that is valid only for the day it is entered. If the order is still outstanding when the market closes, it will be purged overnight.
Derivatives
A financial contract that has its value derived from a traditional security (such as a stock or bond), an asset such as a commodity, or a market index.
Designated Broker
A person who is registered as a broker and must perform certain brokerage duties in relation to an ETF.
Diversification
Limiting investment risk by purchasing different types of securities from different companies representing different sectors of the economy.

Ee

ETF Provider/ETF Sponsor
The company that establishes and administers an Exchange Traded Fund. It administers the ETF by dealing with the creation units and institutional investors when there are changes to the underlying index.
Exchange Traded Commodities (ETCs)
Exchange Traded Funds that invest in commodities like energy, metals or agriculture. ETCs trade like ETFs but are investment vehicles that track the performance of an underlying commodity index rather than an equity index.
Exchange Traded Products (ETFs)
A term used to describe a specialized grouping of exchange traded investments that have a common structure. The term is often used to categorize a grouping that includes Exchange Traded Funds, Exchange Traded Commodities, and Exchange Traded Notes.
Expiration (option)
The date at which an option contract expires. This means that the option can't be exercised after that date. Typically, the Saturday following the third Friday of the expiration month is the expiration day.

Ff

Futures Contract
A legally binding agreement to buy or sell a security or commodity at a specified price on a designated future date.

Gg

Good Til Cancelled (GTC)
A Good Til Cancelled (GTC) order will remain in the system until the date that it is filled or until a maximum of 90 calendar days from date of entry, whichever happens first. This type of order is also referred to as an open order. The investor can cancel a GTC order at any time.

Hh

Holdings
Refers to the specific asset components held within a portfolio. In an equity index or fund, the individual stocks being tracked would be considered the holdings. For an investor, the security assets within their portfolio are their "holdings".

Ii

Index
A group of securities chosen on criteria and maintained based on a set methodology. An index is used as a performance benchmark for a particular market. Examples are the S&P/TSX Composite Index and the S&P/TSX Venture Composite Index.
Index Provider
A company or organization that creates and administers an index.

Ll

Leverage
The use of borrowing for the potential of magnified percentage returns, or losses on an investment. The greater the proportion of borrowing to the value of the investment, the greater the leverage.
Limit Order
An order to buy or sell stock at a specified price. The order can be executed only at the specified price or better. A limit order sets the maximum price the client is willing to pay as a buyer, and the minimum price they are willing to accept as a seller.
Liquidity
This refers to how easily securities can be bought or sold in the market. A security is liquid when there are enough units outstanding for large transactions to occur without a substantial change in price. Liquidity is one of the most important characteristics of a good market. Liquidity also refers to how easily investors can convert their securities into cash.

Mm

Management Expense Ratio (MER) (Management fees, management expense)
A measure of the cost to shareholders of operating a fund, usually calculated as a percentage of assets.
Margin
The amount a broker will lend a client to purchase securities.
Margin Account
An investor account that uses credit from the brokerage to invest in a security (borrow money to buy securities, options, futures or to sell short a security or option).
Market Order
An order to buy or sell a security immediately at the best current price.

Nn

Net Asset Value (NAV)
The market value of a fund's total assets, minus liabilities. NAV per unit is the NAV divided by the number of shares/units outstanding.

Oo

Open-Ended Funds
An investment fund that continuously offers its securities to investors and stands ready to redeem its securities at all times.
Options
A contract that gives the holder (buyer) the right, but not the obligation, to buy or sell certain securities at a specified price within a specified time. A put option gives the holder the right to sell the security, and a call option gives the holder the right to buy the security.

Pp

Premium
An option contract's price.
Put Option
A put option is a contract that gives the holder the right to sell a specified number of shares at a stated price within a fixed time period. Put options are purchased by those who think a stock may decline in price.

Ss

Sector
A related group of industries.
Short Selling (Short Sale)
The selling of a security that the seller does not own in the belief that it will decline in value. Short selling is a trading strategy. Short sellers assume the risk that they will be able to buy the stock at a lower price, cover the outstanding short, and realize a profit from the difference.
Stop Limit
An order type option that can be specified by an investor. A stop limit is reached when the price of a stock rises or falls to a specified price. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or to sell) at no more (or less) than a specified price. As with all limit orders, a stop-limit order will not get filled if the security's price never reaches the specified limit price.
Strike Price
The price the owner of an option can purchase or sell the underlying security.
Swaps
Agreements made between two parties to exchange a stream of periodic payments. Swaps are used to minimize risks associated with fluctuating factors such as currency or interest rates.

Uu

Underlying Index
The index that is being tracked by an ETF or index fund. For example the S&P/TSX 60 Index is the underlying index for the iShares CDN S&P/TSX 60 Index Fund (symbol XIU).

Vv

Volatility
A statistical measure of changes in price over a period of time.

Ww

Weighting
A designated proportion given to each component of an index, portfolio or fund. The proportion illustrates the relative importance or influence on the whole (index, fund or portfolio). Usually a weighting is stated as a percentage of the whole (for example, the stock makes up 21% of the total index).
The determination of the proportions can be based on various factors such as market capitalization, trading price, or a company fundamental. Weightings can change as the underlying factors change.

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