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For the average Investor an Exchange Traded Fund is basically an open end mutual fund which tries to track an underlying index as closely as possible, but is traded like a common stock on an exchange.

Even though there are some actively managed ETF's, and more are likely to be introduced, ETF's are mainly tracking indexes.

Unlike normal mutual funds however they don’t do so by buying all the shares of the index, but by "depositing" the respective number of shares, thus creating the ETF shares in turn.
As there is no trading of all the underlining stocks, ETF's can be even cheaper to run than index based mutual funds.

As they are bought and sold just like normal stocks, the investor must always weight the pros and cons regarding the purchase of ETF's versus mutual Funds. (Cost matters)

ETF's have had mind-boggling increases in assets during the last couple of years, making them more of a known item.
At the time of writing nonetheless not all Swiss brokers offer access to these instruments, even though they might be connected to the particular exchanges.

Many Exchanges trade ETF’s; sometimes the same instruments are traded on several exchanges.

Just to show the variety of ETF's available some examples:

The Swiss Market Index (SMI) is covered by at least 2 ETF's, XMTCH-SMI und SMI-EX, which are traded on the Swiss exchange (SWX) as well as the German exchange (XETRA).
Stoxx50 listing the 50 biggest European companies is tracked by Fresco EURO STOXX, STOXX 50 LDRS, and can be traded on SWX, Virt-X, XETRA, and EURONEXT.
Or on the Fixed Income side: the Lehman short term treasury index (US Bonds) trades as SHY on the America Exchange (AMEX)

For a more comprehensive listing of ETF's see the asset classes, where the relevant indexes and the matching instruments are listed.

As ETF's are issued from several firms, all wanting a slice of the cake the staedy competition should hopefully keep the costs of these instruments at a bare minimum. (One can only hope, since this effect certainly has not worked out when it comes to mutual fund costs)

On a side note: There are even ETF's hitting the market with underlings other than stocks. Bond- and real estate-ETF's are already traded on AMEX, Gold-ETF's are in the pipeline.