Certified Plan Sponsor Professional (CPSP) Practice Exam

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Which type of investment fund is traded continuously throughout the day?

Closed-end funds
Mutual funds
Exchange traded funds
Hedge funds

The correct answer is: Exchange traded funds

Exchange-traded funds (ETFs) are designed to be traded continuously throughout the trading day on stock exchanges, much like individual stocks. This feature allows investors to buy and sell shares of the fund at market prices that fluctuate throughout the day, responding to supply and demand dynamics. This continuous trading offers liquidity, enabling investors to react quickly to market movements. Additionally, the real-time pricing of ETFs provides transparency, as investors can see the current market value at any point during trading hours. In contrast, mutual funds are only priced at the end of the trading day, closed-end funds can trade at premiums or discounts to their net asset values but do not have the same liquidity as ETFs, and hedge funds often have various restrictions related to trading and liquidity, which further differentiates them from the dynamic trading environment of ETFs.