If there is one exchange-traded fund that every ETF investor or ETF trader should know, then that ETF is probably the SPDRs Series Trust, SPY

The SPYs are the most widely traded ETFs on the market. Based on the S&P 500 Index, the SPYs are liquid, optionable, short sellable, and one of the most convenient securities for traders and investors of all timeframes and temperaments.

While the Dow industrials tend to grab the headlines and the Nasdaq has certainly had its day in the sun, the S&P 500 †and by extension, the SPY †is where long term investors looking for broad exposure to the best U.S. stocks turn. The S&P 500 is also a favorite for position traders taking advantage of seasonal tendencies as money flows in and out of stocks. Short term traders love the SPY for its liquidity, which helps the ETF track its underlying index closely on an intraday basis.

Since all 500 stocks of the S&P 500 Index are reflected in the SPY, the fund from time to time tends to be more heavily weighted toward one sector than another. Currently, the SPY has balanced sector leadership, with financials, industrials, energies, healthcare stocks and consumer goods stocks all have 10% or more weighting.

The SPDR Series Trust, SPY, have an average daily trading volume of more than 400 million shares. For investors and traders who want exposure to the top 500 stocks in the United States with the ease and convenience of buying and selling shares of stock, the SPY is an ETF worth getting to know.

Visit www.ssgafunds.com for more information on the SPDR Series Trust, SPY.

For those who already feel as if they own half the S&P 500 and are looking for a little protection against the downside, one attractive option comes from the ProShares family of exchange-traded funds, namely the ProShares Short S&P 500 Index ETF, SH

The SH tracks the S&P 500 Index, but it does so as an inverse or short fund. This means that as the S&P 500 Index moves lower, the SH will move higher. As such, it is an excellent tool for both stock investors and traders looking to hedge long positions in stocks or mutual funds, as well as for shorter term traders looking to take advantage of markets as they move lower by owning a short or inverse ETF that increases in value as its underlying index or market moves lower.

The ProShares Short S&P 500 Index ETF, SH, is a short fund but it is not a leveraged fund. As such, it carries fewer of the risks that many 2X and 3X leveraged funds can have. It also is a way for traders to take a position against the market without having to borrow stocks or ETFs to sell short.

SH trades over 1.5 million shares a day on average. For more information about this exchange-traded fund, visit www.proshares.com.

Coming next: Youve met the SPY. Now meet two its high-octane, leveraged partners: the ProSharesUltra S&P 500, SSO. and the ProShares UltraShort S&P 500, SDS. Be sure to stop by Thursday afternoon as TradingMarkets Everything You Need to Know about Trading ETFs returns with another pair of ETF you need to know.

David Penn is Editor in Chief at TradingMarkets.com.