##  [# Synthetic ETF Definition](/etf-education-center/etf-glossary/synthetic-etf) 

 

# Synthetic ETF Definition

 

 

Learn the definition of synthetic etf and other ETF terminology from the etf.com glossary.



 

 

 

 

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[By ETF Glossary](/authors/etf-glossary)

 Jan 16, 2024

 Edited by: ETF.com Staff

 

 

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## Learn more about Synthetic ETF

A Synthetic ETF employs derivative instruments, such as swaps, to replicate the performance of an underlying index without physically owning the index's constituents. In contrast to Physical ETFs that directly hold the underlying assets, Synthetic ETFs utilize financial instruments to achieve their investment objectives. While offering potential cost efficiencies and the ability to access markets that may be challenging with physical replication, Synthetic ETFs introduce counterparty risk, as they rely on agreements with swap counterparties. Investors considering Synthetic ETFs should conduct thorough due diligence, assessing the fund's structure, associated risks, and the creditworthiness of counterparties to make informed investment decisions.

### Related Terms

[Exchange-Traded Fund](/etf-education-center/etf-glossary/exchange-traded-fund-etf), [Derivatives Based ETF](/etf-education-center/etf-glossary/derivatives-based-etf), [Physical ETF](/etf-education-center/etf-glossary/physical-etf)

 
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 [ ETF Glossary ](/authors/etf-glossary) 

 

 

  ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock…   [View Bio](/authors/etf-glossary)

 



 

 


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