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ETFs 114: Exchange-Traded Fund Best Practices

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1.
Which practice DOES NOT stand to minimize costs when trading exchange-traded funds?
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Using market orders. High liquidity and trading near the middle of the day allow investors to capitalize on the thinnest bid/ask spreads, which minimizes costs.
2.
For domestic exchange-traded funds, the best time to trade is _______.
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The middle of the trading day.
3.
When is the best time to purchase or sell an exchange-traded fund?
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When the market for the ETFs underlying securities are trading efficiently. The best time to trade will vary for different asset classes. Generally, an ETF will trade most efficiently when the market for its underlying securities is operating efficiently. Also, ETF markets tend to perform slightly worse near the market open and close, which is when the market may experience more volatility.
4.
Which type of order will sell a position at a specified price only once a predetermined limit (stop) has been triggered?
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Stop-limit. A stop-limit order becomes a limit order once a stop has been triggered.
5.
What is the term for the sum of the value of the constituents of an exchange-traded fund's underlying basket?
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Net asset value (NAV). Net asset value is the aggregate value of the underlying securities. This can be found every 15 seconds throughout the day by referencing the intraday indicative value (IIV) index. This is a tool used to measure the current market price throughout the day.