Aside from providing low-cost exposure to markets, exchange traded funds also offer the ability to get a sense of risk in financial markets.

If you’re an active trader or investor, certain ETFs can be analyzed to gauge changing and dynamic market sentient. Take for example the iShares Russell 2000 (NYSEArca: IWM). Small-cap stocks tend to outperform large-cap stocks as measured by the iShares S&P 500 (NYSEArca: IVV) when investors are particularly optimistic about the market.

The reasoning for this is that smaller companies tend to be more sensitive to the domestic economy and overall credit conditions, trade less in terms of volume making them less liquid relative to bigger companies, and exhibit higher beta making them more volatile.

Before ETFs, investors would need to look up specific indices to see what certain market averages were doing, and often had to license those indices since many are proprietary and only accessible through specific vendors.