The exchange, simplifying, trades in three basic products: direct resources (currency, gold, oil), events of the companies (ownership share in business) and derivatives. The derivative – all this what cannot be felt here and now, that is, very roughly telling, tools to which the small share of these basic products and many forecasts, promises and opinions is added.
For example, the future is when you speak "in the end of the year I will grow up 2 tons of potato if you purchase from me it on 20 rubles for kilogram". Then the lot of people is signed with you for 100 kilograms of potato, 20 kilograms, ton and so on. At the same time, pay attention, transactions are made, the economy turns, but yet there is neither potato, nor money yet.
In a month someone watches the movie "Martian" and learns that deliveries of a kartokha from Mars are planned. Also decides that it will fall in price. Guess that occurs further.
ETF is, very roughly simplifying, cloudy consumption of events.
Each ETF paper represents an event of fund, and the fund actually is "storage" with events of strictly certain list. For example, at once events of Apple, MS, Google, IBM, Intel, AMD, HP, Symantec, EMC, SAP and other companies integrated by some general sign can enter there. If the companies with this sign are in total stable and grow, then "cluster" wins.
For example, in principle it is clear that the IT sphere will grow the next years (and can prevent unless a global catastrophe). It would be logical to take on a small set of events of each company and to sit to wait for profit. Everyone — because it is unclear which of these companions will survive and as will feel. However in the classical market for this purpose you would need several million dollars.
Naturally, sooner or later there had to be a simple and "humanitarian" tool for those who not the broker also does not want to understand investment subtleties. General automation allowed to collect such infrastructure and to create the tool.