An exchange traded fund is a mutual fund that trades throughout the day on a stock exchange. Most exchange traded funds track a stock or other market index. Exchange traded funds often charge lower annual fees than traditional mutual funds, but you will have to pay a brokerage commission each time you buy and sell shares.

Exchange traded funds can be a good deal if you are making a large one-time investment. They may be your only fund choice if you are an active trader, because many traditional mutual funds prohibit short-term trading. You can also short-sell shares of exchange traded funds, which you cannot do with traditional mutual funds.

If you plan on making small, periodic investments in mutual funds, you are usually better off in a no-load mutual fund.

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