<p>An Exchange-Traded Fund (ETF) is a type of investment fund that tracks a specific market index, sector, or commodity. It's traded on stock exchanges like individual stocks.</p>

<h2>How It Works</h2>
<p>ETFs pool money from multiple investors to purchase a basket of assets. These assets can be stocks, bonds, commodities, or a mix of these. The value of the ETF is determined by the net asset value (NAV) of its underlying assets. ETF shares are then traded on stock exchanges, with prices determined by supply and demand.</p>
<p>ETFs can be actively managed or passively tracked. Actively managed ETFs aim to beat the market by selecting securities. Passive ETFs aim to replicate the performance of a specific market index.</p>
<p>ETFs can be bought and sold throughout the day like stocks, and they often have lower fees than actively managed mutual funds.</p>

<h2>Why It Matters</h2>
<p>ETFs matter because they provide a convenient and cost-effective way to gain exposure to a wide range of markets. They allow investors to diversify their portfolios easily and efficiently. For example, an investor interested in the technology sector can buy a technology sector ETF, which holds a basket of technology stocks, rather than buying individual stocks.</p>
<p>ETFs also offer flexibility. They can be bought on margin, sold short, and used in options strategies. This makes them a versatile tool for investors and traders alike.</p>