Exchange Traded Fund is a marketable security that tracks an index, a commodity, bonds or various assets. ETF are attractive for have higher daily liquidity and lower fees than mutual fund shares hence also an alternative to individual investors.
Since it is a fund that owns underlying assets and divides ownership of the assets into shares, shareholders are entitled to a proportion of the profits such as earned interest or dividends. ETF shares are regulated through creation and redemption. ETF Trading makes investors get the diversification of an Index Fund as well as the ability to sell short, buy on margin and purchase shares that one can afford.
The expense ratio for many ETF is lower than average mutual fund that owns the underlying assets and dividends ownership of the assets into shares. Again ,there is conducive environment since there is favorable taxation on cash flows generated by ETF, since capital gains from sales inside the fund are not passed through to shareholders as are for sector funds.