ETF Trading: Eveything You Need To Know

October 27, 2014

 

Trading An ETF

Exchange traded funds are revolutionising investing. Their ability to access almost any market, their low costs and their intraday liquidity lend themselves easily to both institutional and retail investors. And it is this ability to be traded throughout the day that sets them apart from other passive investment vehicles.

Why is this tradability important? Because it means you can both get the position you want in the market, and in the case of falling markets—as in 2008—you can also get out quickly.

How do you go about successfully trading ETFs? This is our guide...

ETFs trade like a stock
ETFs are like stocks inasmuch as they are listed on stock markets and trade like shares of stocks. Investors can buy as little as one share or as many shares as they like.

How is trading ETFs different to other funds?
ETFs are different to mutual funds because of their ability to trade intraday (like a stock), but also because they allow better levels of transparency of the markets they track.

How do I start trading?
A good place to start when trading an ETF is deciding what ETF to buy. Your local stock exchange will usually have a list of ETFs, or you can find a full list of ETFs at the back of ETF Report UK.

Investors can compare ETFs by various criteria such as total expense ratio, bid/offer spread, turnover and replication methodology. Investors will also have the option of referring to the issuer's website for further details or if they want to learn more about specific product characteristics.

Once the ETF has been chosen, the investor has to decide how they are going to trade it. In most instances the investor can contact their broker or log in to their online brokerage account to place the ETF order. They can also go through a bank or, for institutional investors, go straight to a market maker.

The investor can then decide which trading venue they would like to trade the ETF on. We cover more on platforms and trading venues in our piece 'Choosing Your ETF Trading Platform'.

There are many exchanges in Europe where ETFs can be traded, including the London Stock Exchange, the Borsa Italiana, Deutsche Borse and NYSE Euronext, and there are also a number of independent platforms where ETFs can be found.

 

 

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