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When you invest in an ETF, you receive an index fund’s diversity along with the strategic advantages of buying single stocks such as being able to go long or short, buying just a single share, or making margin purchases. You can also receive a stock’s dividends, and you enjoy continual liquidity. Those who invest in ETFs also have another advantage over mutual funds: the expense ratios are almost always lower than they are for most mutual funds. Since ETFs are traded just like stocks, you simply pay the usual broker’s commission whenever you make a trade.

A great favorite of those who invest in ETFs is the Spider (SPDR). Indicated by the symbol SPY on the AMEX (American Stock Exchange), this tracks the S&P 500 stock index.

Managed by State Street Global Advisors, each and every share of the SPDR equals one-tenth of the S&P 500 index and trades at approximately one-tenth of the dollar-value level of the index. “Spiders” might also denote the general group of ETFs within which the Standard & Poor’s depositary receipt belongs. Spiders get utilized by individual traders as well as big institutional investors, all of whom use them to bet on the trending direction of the market.

SPY is hugely popular among index investors who believe that outside of sheer random luck active stock management cannot beat the gains on a fundamentally sound index because an index is trading on “auto-pilot” and doesn’t involve the guesswork or anticipation needed for managed investing. Called “passive management strategy” investors, these people go by the knowledge that 90% of the biggest gains in the market each year are realized during only 10% of the trading sessions, and nobody ever knows when those sessions are going to be. So with an index fund, they are sure to be in the market when those huge gains come.

Some ETF investors use the ETF Wrap strategy. This is simply where an investor has 100% of her invested money in ETFs. Typical asset allocation strategies with the Wrap are 100% fixed income, 100% equity, or a balance struck between those two. The investor, and/or her advisor if she has one, take into consideration her risk tolerance, her age (for the sake of time horizon), her finances, and her person financial objectives in determining what strategy to use.

ETF wraps give investors low expense ratios, tax efficiency, intraday trading, and other advantages which mutual funds cannot. However, it must be kept in mind that frequent trades would result in high total commissions paid to your broker, since ETFs trade exactly like individual stocks.

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