According to Forbes Investopedia, an exchange-traded fund, or ETF, is an index fund that is traded on a major stock exchange. It consists of a diversified portfolio of stocks in various indexes, like a mutual fund, but it is traded throughout the day, like a stock. There are ETFs available in all of the major indexes: stocks, real estate, gold, and bonds.

Buying an Exchange Traded Fund

To buy an ETF, all an investor has to do is research what fund he or she would like to buy and then contact a stockbroker to make the purchase, just as in buying an individual stock. The process can be made even simpler by investing online through an e-stock trader, such as E-Trade or Fidelity. These sites enable investors to do away with the middle man (the broker) by directly making trades themselves.

Why ETFs Appeal to Investors

ETFs have several draws for investors. They are inexpensive to buy and to maintain, costing an average of 0.9% annually in fees. There are no minimums to buy and investors can get started with just one share. Since they can be bought and sold throughout the trading session like stocks, they are extremely versatile. They can also be easily tracked, since their data is constantly being updated. Several online sites provide free ETF tracking, including Bloomberg and MarketWatch.