5 Tips for Trading ETFs
It is always a good time to brush up on best practices.
A version of this article was published Jan. 17, 2020, on Morningstar.com.
Some investors gloss over the "exchange-traded" in "exchange-traded fund," failing to understand or appreciate those two words and the implications of investing in a fund that trades like a stock. It is hard to fault them, as many of the largest ETFs trade at tight spreads in very narrow bands around their net asset values through most market conditions. But not all ETFs are created equal, nor all market environments for that matter. The mechanisms that underpin the ETF ecosystem have experienced hiccups of varying magnitude, ranging from the "flash crash" in 2010 and the early morning meltdown witnessed on Aug. 24, 2015, to more sporadic episodes of lesser scope and impact. These events have served as painful reminders of why investors should exercise caution when buying and selling ETF shares.
Ben Johnson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.