Exchange traded funds (ETFs) appear to be traded more heavily than single stocks. While its true ETFs are increasing their assets under management, that doesn’t explain ETFs’ high trading volumes. So what gives?
The big institutional players dominate trading. Pension funds, hedge funds and Wall Street trading desks use ETFs as part of complex financial bets, while up to 50% of the trading volume is attributed to pension and hedge funds, explains Ian Salisbury for The Wall Street Journal. Contrary to conventional wisdom, heavy institutional trading by the bigwigs makes little or no difference to an individual trader using small amounts of money. ETFs actually help protect small investors from trading fees. In fact, strong trading volume is a sign that an ETF is healthy.
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