Which statement best differentiates ETFs from mutual funds?

ETFs, or Exchange-Traded Funds, are distinct from mutual funds primarily in their trading mechanisms. The correct statement highlights that ETFs can be traded throughout the trading day, just like individual stocks. This allows investors to buy and sell ETF shares at market prices that fluctuate throughout the day based on supply and demand.

In contrast, mutual fund transactions occur only at the end of the trading day, at which point the fund's net asset value (NAV) is calculated. This fundamental difference in trading time provides investors with flexibility and the potential to react to market conditions in real time when dealing with ETFs, as opposed to having to wait until the end of the day with mutual funds.

Other options present inaccuracies regarding the characteristics of ETFs and mutual funds. For instance, while it's true that pricing and trading mechanisms differ, the costs associated with both investment types vary widely and depend on various factors such as management fees and trading commissions, making a direct comparison on expense misleading. Furthermore, both ETFs and mutual funds can often be purchased in fractional shares depending on the brokerage platform. Lastly, while mutual funds can offer liquidity, ETFs typically provide higher liquidity due to their ability to be traded on an exchange, which generally allows them to be bought and sold more readily.