Ever wonder how to buy gold ETFs and what an ETF really is? An ETF is an "Exchange Traded Fund", also known as a mutual fund or a collective fund where others invest and participate as individuals or as groups and companies; sharing the benefits and costs that are incurred.

ETF's have been around in the US since 1993 and have been offered in Europe since 1999. Many ETF's, are attractive to investors, since they have low costs, are tax efficient and are tracking an index, such as the Standard and Poor's 500 (S & P 500) throughout the day. In 2008, the United States Securities and Exchange Commission created actively managed ETF's.

Investing in gold is, however, a bit more difficult than investing in stocks and bonds, since the latter are more easily transferrable. Gold, which is a commodity, needs to be traded through the options and futures markets. However, investors can easily buy gold bullion from a bank or a dealer, without having to have the actual gold bullion in their possession.

While both gold and oil have ETF's, that is not the case for other commodities. The SPDR Gold Trust (GLD), considered by many as the top gold ETF to buy, trades on the NYSE (New York Stock Exchange) during the entire trading day, and each gold ETF share is one-tenth of an ounce of gold. Example if it costs $600 for an ounce of gold, then the gold ETF will be traded at $60 per share.

Investing in gold ETF's is, therefore, one of the least expensive ways and easiest ways to get into the gold market, and in general, an investor who wants to invest in gold can do one of three things:

1) Purchase gold as a physical asset
2) Purchase an ETF which will replicate the Gold price
3) Trade in the commodities market with options and futures

Traditionally, ETF's, as stated previously, are like an "Index Fund." An index fund replicates movements of specific financial markets, and regardless of market conditions, an index fund tracks a set of ownership rules and regulations that are held constant.

Large institutional investors buy ETF shares from a fund manager and sell these shares back to that fund manager. These types of buyers are called "Authorized Participants;" they will invest long-term in the ETF shares and provide liquidity of ETF shares within the market; these are also known as "Market Makers."

On the other hand, other individual investors, who use brokerage houses, will trade shares on what is called a "Secondary Market." This type of market, also known as "Aftermarket," is a market where the investor purchases particular securities, not from an issuer of the security, but rather from another investor.

Now that you have an understanding of how to buy gold ETF's, get out there and add some to your portfolio. In a gold bull market, you'll be glad you did.