For all their strong points, trading exchange traded funds (ETFs) may prove to be a tricky endeavor in these volatile markets. There are a few things investors can do to lessen their risk of trading in these tumultuous markets. The credit crisis has kept things interesting, with extra trading costs creeping in an unpredictable prices.
Ian Salisbury for The Wall Street Journal explains that there is no one certain way an investor trading ETFs will get perfect treatment every time. Trading problems plague even the most seasoned investors and exchanges are constantly canceling poorly done trades.
The most important thing an investor can do after a trade is keep a close watch. Another important thing to utilize is the “limit” order instead of a “market” order. Limit orders instruct brokers to buy shares only if they can find them at or below a given price, not at whatever price the market offers. Breaking up a large order into small chunks is also a good tactic as well, since traders are spending hours taking small bits of ETF shares offered at the right price.
The time of day you trade also matters. The beginning or open of the market is less desirable because bid-ask spreads are wider at the open. Market makers are still testing the waters on the values of underlying shares before prices have been recorded. That said, the final hours of trading can be nail-biting as well.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.