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ETFs 114: Exchange-Traded Fund Best Practices

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1.
For domestic exchange-traded funds, the best time to trade is _______.
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The middle of the trading day.
2.
What does the intraday indicative value index show investors about exchange-traded funds?
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What the net asset value of the underlying holdings is worth at any given time. The IIV is an important tool for determining what an ETF is worth at any point.
3.
What trading practice keeps exchange-traded fund prices close to their net asset values?
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Arbitrage. With arbitrage, traders take advantage of the difference between the market price and the net asset value.
4.
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.
5.
Why are limit-orders the most effective type of orders to use with exchange-traded funds?
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They allow patient investors to receive the price they want. Limit orders give investors the greatest amount of flexibility in filling at the price the desire, if they are patient.