Trading Exchange Traded Funds or ETFs can be one of the most paying investments, but it can also be tricky, especially if you are new to the market. No matter if the ETF market is volatile or not, every trader needs to conceptualize some key trading strategies if you are looking to venture into this kind of trade. You have researched and established that ETFs are your best fit, right? Here are some of the strategies that you might want to consider to help you get the best prices.
Over the last few years, best ETF stock have registered remarkable growth since their debut in 1993. Today, the total asset value is crossing the $5 trillion mark. In 2020 alone, ETFs recorded an accumulative $495 billion in net flows, making it one of the most sought-after investment vehicles in modern portfolio investment. This growth goes a long way in demonstrating the ever-increasing demand for ETFs. While the growth is phenomenon, it is still important to do your research before deciding to invest in an ETF. Here are some of the factors to consider:
• The underlying characteristics of the ETF in terms of asses class, risk and the underlying index.
• What benchmark does it seek to track? What is the established tracking error for active and passive ETFs?
• What specific investments does the ETF provide exposure to? In other words, what are the underlying holdings?
• What is the liquidity of the ETF? This will goa long way in impacting your ability to buy or sell a given ETF amount at a specified price
Having considered the above factors, the whole task boils down to the actual trade. The most important consideration to make when getting down to trade is discussed below.
Trading around the Market Open and Close is not the Best
ETF experts advise that the volatility of ETF prices around these periods is such that investors can end up making losses. During high volatility, the range of publicly quoted bid and ask prices are usually limited. However, higher volatility during these periods may come with negligible intraday differences since the market is often volatile. Usually, high buy or sell orders can outweigh the available depth of book, something that can cause a price dispersion. This means that such a trade will be difficult to match with your desired prices, especially when you compare it with the days when the volatility is low. If it is a must that you trade ETFs during market open and close, it is advisable to make use of limit orders and avoid market orders. To buy the best ETF stock, contact your brokerage firm or financial institution in order to guarantee the best returns.
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