Exchange-traded funds (or ETFs) are open ended mutual funds that can be traded at any time throughout the course of the day. Typically, ETFs try to replicate a stock market index such as the S&P 500 (.INX) or the Hang Seng Index, a market sector such as energy or technology, or a commodity such as gold or petroleum; However, as ETFs proliferated in 2006 from under one hundred in number to almost four hundred by the end of the year, the trend has been away from these simpler index-tracking funds to intellidexes and other proprietary groupings of stocks.
The legal structure and makeup varies around the world, however the major common features include:
These qualities provide ETFs with some significant advantages compared with traditional open-ended collective investments. The ETF structure allows for a diversified, low cost, low turnover index investment. This appeals to both institutional and retail investors both for long term holding and for selling short and hedging strategies.

An exchange listing and ability to trade continually;
They are index-linked rather than actively managed;
Through dynamic and quantitative strategies, these can be dynamic rather than static indexing strategies
The ability to handle contributions and redemptions on an in-kind basis (typically in large blocks of shares only); and
Their 'value' (but not necessarily the price at which they trade—they can trade at a 'premium' or 'discount' to the 'underlying' assets' value) derives from the value of the 'underlying' assets comprising the fund. Creation and redemption of shares
People have talked about 'actively managed ETF' for a long time, therefore more likely to be proponents of indexing (a passive strategy). So it is not immediately obvious who would buy actively managed ETFs.

Actively managed ETF
Today ETFs present a viable alternative investment option to traditional open-ended mutual funds, especially open-ended index funds. There are many available ETFs that attempt to track all kind of indexes (such as large-cap, mid-cap, small-cap, etc), fixed income, style (such as value and growth), industries, countries, precious metals and other commodities and more are being developed.
ETFs also enable people living outside the United States to participate in US based mutual funds. Traditional open-ended US mutual funds are available only to US residents, whereas anyone in the world can purchase shares in an ETF that trades on the open market.

Usage
The first ETF was introduced on the Toronto Stock Exchange in 1990.
There are over one hundred ETFs traded on the American Stock Exchange, with more in other countries. ETFs have been gaining popularity ever since they were introduced on the American Stock Exchange in the mid 1990s, beginning with SPY (launched by State Street Global Advisors and tracking the S&P 500) in 1993. ETFs are attractive to investors because they offer the diversification of mutual funds with the features of a stock. The popularity of these funds is likely to increase as new and more innovative ETFs are introduced.
The original ETFs were set up as competitors to open-ended index funds, and subsequent ETFs have usually followed in their footsteps: they typically have very low expense ratios compared to actively managed mutual funds. They also have a lower turnover ratio, which in some jurisdictions can be more tax-favorable.
ETF managers such as BGI and State Street Global Advisors are the current leaders in the ETF industry by assets under management, with 75% of the market.

History
Given that ETFs trade on an exchange, each transaction is subject to the broker's fee. Many mutual funds do not charge such fees. In scenarios where an investor transacts frequently, or for small amounts, these fees for trading ETFs can erode gains and thus make investing in a mutual fund more attractive. However, with the advent of low or no-cost transactions from various brokerages, this advantage of mutual funds over ETFs has been diminished in many cases.
ETF fees also tend to be slightly more transparent than fees for mutual funds. There are no deferred sales charges, or other kickbacks to the dealer. Instead there is a regular MER, and the initial exchange commission, if any, to purchase the ETF.
There are many advantages to ETFs, and these advantages will likely increase over time. Most ETFs have a lower expense ratio than comparable mutual funds. Mutual funds can charge 1% to 3%, or more; index funds are generally lower, while ETFs are almost always in the 0.1% to 1% range. Over the long term, these cost differences can compound into a noticeable difference.
ETFs are more tax-efficient than mutual funds in some jurisdictions [2]. In the U.S., whenever a mutual fund realizes a capital gain that is not balanced by a realized loss, the mutual fund must distribute the capital gains to their shareholders by the end of the quarter. This can happen when stocks are added to and removed from the index, or when a large number of shares are redeemed (such as during a panic). These gains are taxable to all shareholders, even those who reinvest the gains distributions in more shares of the fund. In contrast, ETFs are not redeemed by holders (instead, holders simply sell their ETF on the stock market, as they would a stock), so that investors generally only realize capital gains when they sell their own shares.
However, there are some potential taxation drawbacks to ETFs in the United States. One argument made in favor of index mutual funds having a tax advantage over ETFs is that ETFs often trade their shares more rapidly to maintain a high cost basis of their underlying shares. This can result in ETF dividends failing to be classified as qualified dividends since the underlying shares don't satisfy the IRS requirements. This can be a substantial drawback since your ordinary tax rate may be significantly higher than the 15% tax charged on qualified dividends.
Perhaps the most important, although subtle, benefit of an ETF is the stock-like features offered. Since ETFs trade on the market, investors can carry out the same types of trades that they can with a stock. For instance, investors can sell short, use a limit order, use a stop-loss order, buy on margin, and invest as much or as little money as they wish (there is no minimum investment requirement). Also, many ETFs have the capability for options (puts and calls) to be written against them. Mutual funds do not offer those features.
For example, an investor in an open-ended fund can only purchase or sell at the end of the day at the mutual fund's closing price. This makes stop-loss orders much less useful for open-ended funds – if your broker even allows them. An ETF is continually priced throughout the day and therefore is not subject to this disadvantage, allowing the user to react to adverse or beneficial market condition on an intraday basis. This stock-like liquidity allows an investor to trade the ETF for cash throughout regular trading hours, and often after-hours on ECNs. ETF liquidity varies according to trading volume and liquidity of the underlying securities, but very liquid ETFs such as SPY, DIA, and QQQQ can be traded pre-market and after-hours with reasonably tight spreads. These characteristics can be important for investors concerned with liquidity risk.
A more subtle advantage is that ETFs, like closed-ended funds, are immune from some market timing problems that have plagued open-ended mutual funds. In these timing attacks, large investors trade in and out of an open ended fund quickly, exploiting minor variances in price in order to profit at the expense of the long-term unit holders. With an ETF (or closed-ended fund) such an operation is not possible--the underlying assets of the fund are not affected by its trading on the market.

ETFs vs. open-ended funds

Ameristock issues Ameristock ETFs.
First Trust Advisors issues specialty First Trust ETFs.
Barclays Global Investors issues iShares.
State Street Global Advisors issues streetTRACKS and SPDRs.
Vanguard Group issues Vanguard ETFs, formerly known as VIPERs
Rydex Investments issues Rydex ETFs.
ETF Securities issues ETFS or specialised ETCs
Merrill Lynch issues HOLDRSs.
Bank of New York issues BLDRS based on ADRs.
PowerShares issues PowerShares ETFs.
Deutsche Bank manages PowerShares DB commodity- and currency-based ETFs.
WisdomTree issues fundamentally weighted WisdomTree ETFs.
Lyxor Asset Management issues Lyxor ETFs.
ETF Capital Management operates a global fund of ETFs.
Claymore Securities issues specialty Claymore ETFs.
ProFunds issues inverse and leveraged ProShares ETFs.
Van Eck Global issues Market Vectors ETFs. Major Issuers of ETFs
The first, and most widely held (as of 2007) US ETF is the Standard & Poor's Depository Receipt, abbreviated SPDR. Shares of SPDR, called "spiders", are issued by State Street Global Advisors, and listed on the American Stock Exchange under the ticker SPY. Also popular and well known are the ETFs that track the NASDAQ-100 index ("qubes") and the Dow Jones Industrial Average DIA ("diamonds"), also issued by State Street Global Advisors.
Top 10 US-based ETFs, by assets under management (April 2007):

SPDRs "spiders" by State Street Global Advisors (AMEX: SPY)
iShares MSCI EAFE Index Fund (AMEX: EFA)
iShares S&P 500 Index Fund (NYSE: IVV)
PowerShares QQQ "qubes" (NASDAQ: QQQQ)
iShares MSCI Emerging Markets Index Fund (AMEX: EEM)
iShares MSCI Japan Index Fund (NYSE: EWJ)
iShares Russell 2000 Index Fund (AMEX: IWM)
streetTRACKS Gold Shares (NYSE: GLD)
iShares Russell 1000 Value Index Fund (AMEX: IWD)
MidCap SPDRs (AMEX: MDY) Top U.S. ETFs
In the European Union many ETFs are traded as cross border UCITS III funds. For example the UK iShares and ETF Securities are Irish registered UCITS funds and trade on the London Stock Exchange. Other ETF's are offered by Indexchange Investments AG, whose funds are listed in Germany on the Deutsche Börse. Indexchange was a subsidiary of HypoVereinsbank. It has been acquired by Barclays Global Investors

ETFS All Commodities DJ-AIGCISM
ETFS Energy DJ-AIGCISM
iShares DJ STOXX 50
iShares DJ EURO STOXX 50
Indexchange DJ Euro Stoxx EX
Indexchange DJ Euro Stoxx 50 EX
Indexchange DJ Stoxx 50 EX
Lyxor ETF DJ Euro Stoxx 50
Lyxor ETF MSCI Europe European ETFs
In Sweden six ETFs exist as of November 2006, all provided by XACT Fonder:

XACT Bull - leveraged ETF tracking 1,5 times daily OMXS30 returns
XACT Bear - like Bull, but inverse, Bear gains from market declines
XACT OMXS30 - tracking 30 most traded stocks in Stockholm Stock Exchange
XACT OMXSB - tracking 80-100 most traded stocks in Stockholm Stock Exchange
XACT F Euro - Fundamentally Weighted index, about 270 stocks in Eurozone
XACT VINX30 - tracking 30 most traded stocks in the Nordic region (Sweden, Norway, Finland, Denmark) Swedish ETFs

SGL OMHXH25 - It is a market value weighted index that consists of the 25 most-traded stock classes. Provided by Seligson & Co Fund Management
XACT OMXH25 - Same as above by Handelsbanken Mutual Fund Company Ltd. Finnish ETFs
In Canada, Barclays Global Investors is the largest ETF provider, offering ETFs under the iShares brand name:
Claymore Investments also offers a series of ETFs available in Canada:
Horizons Betapro also offers a series of ETFs available in Canada:

XIC -- tracks the S&P/TSX Composite Total Return Index
XIU -- tracks the S&P/TSX 60 Total Return Index
XMD -- tracks the S&P/TSX MidCap Index
XCS -- tracks the S&P/TSX SmallCap Index
XEG -- tracks the S&P/TSX Capped Energy Index
XIT -- tracks the S&P/TSX Capped Information Technology Index
XGD -- tracks the S&P/TSX Capped Gold Index
XFN -- tracks the S&P/TSX Capped Financials Index
XMA -- tracks the S&P/TSX Capped Materials Index
XRE -- tracks the S&P/TSX Capped Real Estate Investment Trust Index
XTR -- tracks the S&P/TSX Income Trust Index
XDV -- tracks the Dow Jones Canada Select Dividend Index
XCG -- tracks the Dow Jones Canada Select Growth Index
XCV -- tracks the Dow Jones Canada Select Value Index
XEN -- tracks the Jantzi Social Index
XSB -- tracks the Scotia Short-term bond Index
XBB -- tracks the Scotia Capital Bond Index
XRB -- tracks the Scotia Capital Real Return Bond Index
XCB -- tracks the Scotia Capital All Corporate Bond Index
XGB -- tracks the Scotia Capital All Government Bond Index
XLB -- tracks the Scotia Capital Long Term Bond Index
XSP -- tracks the S&P 500 Index (currency hedged)
XSU -- tracks the Russell 2000 Index (currency hedged)
XIN -- tracks the MSCI EAFE 100% Hedged to CAD Dollars Index (currency hedged)
CBQ - Claymore BRIC ETF -- tracks the BNY BRIC Select ADR Index (Brazil, Russia India and China)
CDZ - Claymore CDN Dividend & Income Achievers ETF -- tracks Mergent's Canadian Dividend & Income Achievers Index.
CLO - Claymore Oil Sands Sector ETF -- tracks the Sustainable Oil Sands Sector Index
CLU - Claymore US Fundamental ETF (Canadian Dollar Hedged) -- tracks the FTSE RAFI US 1000 Canadian Dollar Hedged Index
CRQ - Claymore Canadian Fundamental Index ETF -- tracks the FTSE RAFI Canada Index
CWW - Claymore S&P Global Water ETF -- tracks the S&P Global Water Index
HXU - the "HBP 60 Bull + ETF" -- tracks two times (200%) the daily performance of the S&P/TSX 60 Total Return Index
HXD - the "HBP 60 Bear + ETF" -- tracks two times (200%) the inverse (opposite) of the daily performance of the S&P/TSX 60 Total Return Index
HEU - the Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF -- tracks two times (200%) the daily performance of the S&P/TSX Capped Energy Index.
HED - the Horizons BetaPro S&P/TSX Capped Energy Bear Plus ETF -- tracks two times (200%) inverse the daily performance of the S&P/TSX Capped Energy Index
HFU - the Horizons BetaPro S&P/TSX Capped Financial Bull Plus ETF -- tracks two times (200%) the daily performance of the S&P/TSX Capped Financials Index.
HFD - the Horizons BetaPro S&P/TSX Capped Financials Bear Plus ETF --tracks two times (200%) inverse the daily performance of the S&P/TSX Capped Financials Index. Canadian ETFs

M62.SI CIMB FTSE ASEAN40 ETF
I98.SI iShares MSCI India ETF
P58.SI Lyxor ETF China Enterprise (HSCEI)
A9B.SI Lyxor HangSeng 10US$
P60.SI Lyxor ETF MSCI AC Asia-Pacific Ex Japan
CW4.SI Lyxor ETF Japan (Topix)
AO9.SI Lyxor ETF MSCI Korea
A9A.SI Lyxor ETF MSCI Taiwan
S67.SI streetTRACKS® Straits Times Index Fund
A0W.SI Lyxor ETF Commodities CRB
O87.SI streetTRACKS® Gold Shares Singapore ETFs (as of 12 Sep 2007)

2800.HK TraHK -- tracks the Hang Seng Index
2801.HK China Tracker -- tracks the MSCI China Index
2819.HK ABF HK IDX ETF -- tracks the iBoxx ABF Hong Kong Index
2821.HK ABF Pan Asia Bond Index Fund -- tracks the iBoxx ABF Pan-Asia Index
2823.HK A50 China Tracker -- tracks the FTSE/Xinhua China A50 Index
2828.HK HS H-Share ETF -- tracks the Hang Seng China Enterprises Index
2833.HK HS HSI ETF -- tracks the Hang Seng Index
2836.HK SENSEXINDIA ETF -- tracks the BSE Sensitivity Index
2838.HK Hang Seng FTSE/Xinhua China 25 Index ETF -- tracks the FTSE/Xinhua China 25 Index Hong Kong ETFs
All ROK-based ETFs, as of June 2006:

KODEX 200
KOSEF
KODEX Baedang ('Baedang' means 'dividend' in Korean)
KODEX KRX 100
KODEX Star
Lyxor ETF MSCI Korea Top Republic of Korea ETFs

Listed in Osaka Securities Exchange

• 1320 Daiwa ETF - Nikkei 225 -- tracks the Nikkei 225
  1321 Nikkei 225 Exchange Traded Fund (Nomura) -- tracks the Nikkei 225
  1328 Gold-Price-Linked Exchange Traded Fund Japan ETFs
  
  Listed on the Australian Securities Exchange (At this moment, only indexed ETF's)
  
  
  
  • SFX -- tracks the the top 50 Australian Shares
    STW -- tracks the top 200 Australian Shares
    SLF -- tracks the Listed property trusts in the top 200 Commodity ETFs
    
    Collective investment scheme
    Mutual fund
    Index fund
    Enhanced indexing
    Investment trust
    Gold exchange-traded fund