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Explore A World of Options with ETFs
| April 20, 2012 | 08:18 AM EDT

As the universe of exchange traded funds grows larger and ever more diverse, more retail investors are gravitating to the financial instrument.

The number of ETFsjumped almost 27 percent in 2011 to 1,166, according to the Investment Company Institute. Some two dozen new ones launched in January 2012 alone.

Now a trillion-dollar business, ETFs are still nowhere near the size of the rival mutual fund industry, but their liquidity — they trade throughout the day like stocks — makes them more of a stock- market force than their number suggests.

In today's high-speed trading environment, ETFs can be bought and sold over and over during the trading day — not like mutual funds, which are priced once a day, and after the close of trading. Critics say this has contributed to increased volatility and the short-term trading mentality (which was associated with the so-called "Flash Crash" of 2010), but at the very least, such liquidity puts retail investors on an equal footing with larger ones.

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