However, pushing in large orders can cause additional headaches as trading a large sum too quickly can push up an index and its underlying stocks.
“A lot of ETFs are quoted by market-making algorithms,” Chris Hempstead, director of ETF Execution at WallachBeth Capital, said in the article. “If the quotes fill in around your trade (back to the original price), you probably paid too much.”
“You should have a sense of the maximum amount you would pay before the trade, including commissions and convenience charges,” Matt Hougan, president of ETF Analytics for Index Universe, added.
Reginald M. Browne, managing director for listed derivatives at Knight Capital Group, suggests that investors should combine a mix of both market-maker on a secondary market and an authorized participant creating shares of the fund while also considering alternative ETFs that offer similar exposure.
For more information on trading ETFs, visit our ETF 101 category.
Max Chen contributed to this article.