Exchange Traded Funds (ETFs) have been one of the hottest trends in the stock market for the last few years. They have many advantages that both traders and investors should consider.

ETFs are similar to mutual funds, in that you are getting the advantage of diversity by investing in a group of stocks all at one time. However, there are some major differences between these two types of funds. The most important difference is that ETFs trade just like stocks. You can use any broker to buy an exchange traded fund, such as QQQQ, just like you would buy MSFT or any other stock. This is a major advantage over mutual funds, which are much harder to get in and out of.

ETFs are also not actively managed. Mutual funds usually have a group of people who manage the holdings of the fund and try to provide the best possible returns. ETFs simply track a set group of stocks, usually based on an already established index, such as the NASDAQ 100 or other indexes as with the more focused funds like IYF from iShares, which tracks the Dow Jones Financial Sector Index.

Another major advantage to ETFs is that they usually provide a highly liquid asset to trade. According to Yahoo! Finance, which has a large section of their site devoted to information about ETFs, there are around 30 funds that have an average daily volume (past three months) greater then 1,000,000 shares. The most heavily traded funds are QQQQ, SPY and IWM. These three funds track the NASDAQ 100, S&P 500 and Russell 2000 indexes, respectively.

The future of ETFs is in the tracking of assets other then stocks. Last year, streetTRACKS released a fund that just holds gold and allows investors to buy gold without the normal hassle of commodity trading. StreetTRACKS Gold Shares trades under the symbol GLD. Another new fund is Rydex's Euro ETF which is the first to track a currency. Euro Currency Trust trades under the symbol FXE. More commodity and currency funds are being planned for release in the future.