In the morning, ETF prices may adjust to the difference (premium or discount) between the previous day's closing price and their net asset value. This can result in ETF prices moving in the opposite direction of their underlying holdings. In the morning, adjustments are also occurring to an ETF's underlying stocks at market open. Additionally, when approaching market close at 4:00 p.m. EST, market makers often begin to take down positions and hedge their books. A good practice is to avoid placing orders during the first and last 30 minutes of trading.
During days of heightened volatility, the underlying stocks' movements can temporarily throw an ETF's underlying value off its bid-ask spread (the difference between the highest buyer's bid price and lowest seller's ask price). As well, the bid-ask spread will likely widen.
When there's a wide bid-ask spread, placing a limit order and letting the market come to you may help. Limit orders define the price you're willing to pay, thereby limiting your market impact.
Market orders, which execute at the best available price at the moment, are fine for ETFs with tight spreads and good liquidity relative to your order size. The risk with using a limit order is that your order doesn't get filled and you miss out the ETF's move.
If possible, select funds with tight bid-ask spreads and good trading volume. Although high volume doesn't necessarily equal liquidity, it implies that a limit order for a few hundred shares near the current mid-market price should be filled quickly. Large orders, which are more concerned with price impacts, generally benefit from the market makers' ability to keep prices close to the NAV and execute large block trades.
If you are investing in an ETF that holds foreign securities, such as European or emerging-markets equities, you should consider investing only while the underlying market is open, if possible. It is also important to note that many commodities markets don't have the same hours as the regular stock market. For instance, the Chicago Board of Trade's grain contracts don't open until 10:30 a.m. EST, and they close at 2:15 p.m. EST. By restricting your trades to mutual hours, you are less likely to pay up for the uncertainty.
One of the fastest ways to give money away is by paying high brokerage fees. Consider how much you are paying for each leg of your transaction; round-trip transaction costs are what matter. These costs become particularly important if you're frequently investing a small amount of money. If that's the case, an index mutual fund might be a better option if you can find a similar one. Brokerage costs vary widely, based on the level of service, convenience, trading frequency, and the size of your account, among other factors.
Market makers working for the designated brokers add liquidity and help keep the bid-ask spread near the ETF's underlying value, so having more is generally desirable. To determine who's making a market for an ETF, either ask the fund company or watch the broker bid (if you receive level-two quotes).