Exchange-traded funds, one of the hottest investment trends of the year, are essentially mutual funds that trade like stocks. As with a typical mutual fund, investors can purchase ETFs and get the equivalent of a portfolio of stocks through a single investment. Also, like typical mutual funds, there isn't a fixed number of ETF shares to be purchased. However, investors can buy and sell shares of exchange-traded securities throughout each trading day -- just like stocks -- paying typical brokerage commissions. Because ETFs track indices, these securities are cheaper than actively managed stock funds. Proponents of these products also praise their tax efficiency, as they tend not to make taxable distributions to shareholders. But, as ETFs proliferate, would-be investors need to know the basics -- both the advantages and the risks -- before jumping in.