5 tips for trading ETFs

It is always a good time to brush up on what constitutes good hygiene when transacting ETFs

Ben Johnson, CFA 20 January, 2020 | 1:54AM

Laptop screen with online stock brokerage account

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.

It is always a good time to brush up on what constitutes good hygiene when transacting ETFs. Here, I provide five tips on how to best trade them.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
iShares MSCI Japan ETF56.63 USD-0.84
SPDR® S&P 500 ETF Trust333.48 USD-1.03
Vanguard FTSE Europe ETF58.05 USD-0.33

About Author

Ben Johnson, CFA

Ben Johnson, CFA  Ben Johnson, CFA, is director of global ETF research for Morningstar and editor of Morningstar ETFInvestor, a monthly newsletter.