ETFs have become a household name, attracting the eyes of institutions, financial advisors and retail investors. However, many do not yet fully understand how the relatively new investment vehicle works.
“Exchange-traded funds (ETFs) have seen immense growth over the past decade. There are a multitude of benefits, including transparency, tax efficiency and the ability to make intraday trades, that have contributed to the use and growth of ETFs. While these are all beneficial to investors, we continue to see questions around ETF trading,” Paige Kyle, Capital Markets Associate for WisdomTree, said in a note.
While ETFs trade on an exchange like stocks, investors should know that ETFs trade differently and that ETF execution is an important part of investing. To help investors better understand the best practices in executing ETF trades, Kyle outlined a number of do’s and don’ts to successful ETF trading.
For starters, Kyle advised investors to refrain from trading in the first or last 15 minutes of the trading day when trading desks have less transparency and markets experience greater volatility.
ETF investors should avoid market orders. Investors should get in the habit of placing limit orders as this trade order helps people better control their price points.
Always Use Limit Orders
“We advise investors to always use limit orders, especially in times of volatility. We also advise investors to not use stop-loss orders that turn into market orders,” Kyle said.