Exchange-Traded Fund Best Practices: When to Trade

An important rule of exchange-traded funds surrounds the time at which one should trade. Generally speaking, the best time to trade ETFs is when the market for the underlying securities is open and functioning well. For domestic equities, this is closer to the middle of the trading day rather than the 30 minutes at the beginning or end of the day.

Some more perspective on timing

Bid-ask spreads tend to be widest near market-open. Market makers tend to wait to see how the underlying securities are trading before they can establish an accurate indication of the net asset value, though this effect is tempered in highly liquid funds. Trading near the market-close can also get hectic at times, especially in a volatile market, so trading as near to the middle of the day as possible can be advantageous.

What investors should keep in mind

If investors remember to maintain their patience, minimize the number of transactions, and use limit orders to trade liquid ETFs with tight bid/ask spreads as near to the middle of the day as possible, they can add real value to their portfolios through cost management.