What are Exchange Traded Funds (ETFs)?

In short, they are similar to index mutual funds, but are traded more like a stock. As their name implies, Exchange Traded Funds (ETFs) represent a basket of securities that are traded on an exchange. As with all investment products, exchange traded funds have their share of advantages and disadvantages.

Advantages of Exchange Traded Funds

Being similar to stocks, exchange traded funds offer more flexibility than your typical mutual fund.

ETFs can be bought and sold throughout the trading day, allowing for intraday trading - which is rare with mutual funds.

Traders have the ability to short or buy ETFs on margin.

Low annual expenses rival the cheapest mutual funds.

Tax efficiency - due to SEC regulations, ETF tend to beat out mutual funds when it comes to tax efficiency (if it is a non-taxable account then they are equal).

http://mutualfunds.about.com/cs/etfs/a/exchangetraded.htm