Additionally, ETFs are made to try to reflect the performance of an underlying index. If the ETF starts to veer away from the index, investors will taking an implicit cost to investing in the fund – Wasik notes that anything over 0.10 percent variation is a warning sign. [Trading Costs]
Lastly, the average retail investor will buy and sell ETFs through an exchange, which typically charges a commission fee. Needless to say, these transaction fees add up for the the active day trader, but there are some brokerages that offer commission-free trades on select ETFs.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.