An ETF (Exchange-Traded Fund) is a type of investment that combines the features of a traditional mutual fund with trading shares on a stock exchange. It is designed to track a specific index, sector, commodity or investment strategy.

The way an ETF works is relatively simple. It is made up of a basket of underlying assets, such as stocks, bonds, currencies or commodities. Investors can buy or sell ETF shares on the stock exchange, just as they would buy shares in a company. By purchasing shares of an ETF, the investor is acquiring a proportionate interest in the fund's portfolio of assets.

The main advantage of an ETF is diversification. Because the fund has a variety of assets, investors have exposure to a wide range of companies or sectors, reducing risk compared to investing in individual stocks. In addition, ETFs offer liquidity, as shares can be bought or sold throughout the trading day at real-time market prices.

Another advantage of ETFs is transparency. Unlike traditional mutual funds, which disclose their composition periodically, ETFs report daily the assets that make up their portfolio. This allows investors to know exactly what they are investing in.

There are different types of ETFs, including index ETFs, which seek to replicate the performance of a specific index, sector ETFs, which focus their investments in a specific sector of the economy, and commodity ETFs, which track the price of commodities such as gold, oil or precious metals.

ETFs have become popular among individual and institutional investors due to their advantages, such as diversification, low cost, transparency and ease of trading. However, it is important to point out that, like any investment, ETFs present risks and investors should carefully assess their objectives and risk tolerance before investing.

In summary, an ETF is an investment vehicle that combines features of an investment fund with stock trading. It offers diversification, liquidity and transparency, allowing investors to gain exposure to a wide range of assets in an efficient and affordable manner.