Meanwhile, ETFs tracking liquid baskets such as SPDR Dow Jones Industrial Average (NYSEArca: DIA) have extremely low spreads, according to the report. It should be noted that low trading volume doesn’t necessarily mean an ETF has wide bid/ask spreads. Investors also need to consider the liquidity of the market the ETF tracks.
“Another way to protect yourself is to use limit orders when you trade ETFs, so that you’re not surprised by an execution price much worse than you expected,” Maranjian writes.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.