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ETF Trading Essentials

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Decorative iconFor many investors, ETFs have become an integral part of their portfolios and asset allocation strategies. It is important then for investors in these evolving and increasingly sophisticated markets to have a basic understanding of trading situations that they may find themselves in when attempting to buy or sell an ETF with an advisor.

Exchange traded funds (ETFs) are pooled investment vehicles that invest in portfolios of securities. Since ETF shares are available for trading on securities exchanges, investors can easily see the prices and volumes at which ETF shares trade. The price of any given ETF is the product of supply and demand for the securities that are used to create the ETF’s own portfolio.

After the markets close at the end of each trading day, investors can also see how market-quoted prices for an ETF share relate to its Net Asset Value (NAV) and whether those prices reflect a premium or discount relative to the NAV.

ETF trading

ETFs can be bought or sold on stock exchanges at market-quoted prices at any time during the trading day. This feature gives investors access to the same trading flexibility and control as they have with stocks, allowing them to place a variety of trading orders including market orders, limit orders, stop orders or stop limit orders. Utilizing the appropriate order type ensures that investors are applying the correct terminology to help them achieve their desired outcome.

ETF trading


Trading when equity markets are open but fixed income markets are closed
This happens a few times a year. Columbus Day and Veterans Day exemplify full days when the bond market is closed and the stock market is open. Several other days exist when the bond market closes earlier than the stock market.

  • Place a limit order as described above that may help control the spread but don’t allow orders to execute above the “limit” price. Remember, however, there is no guarantee of trade execution
  • Review the current spread between the bid and the ask price of the product to verify that it is not wider then it has been in the past
  • Consider delaying the trade to a different day and time when the bond market is open


Trade Timing: Markets can be more volatile near the open and close. Consider placing your trade during the normal course of the day to potentially minimize price and spread volatility.

Market Conditions: During volatile markets, a limit order may be appropriate to help protect against major price swings. It is possible that not all of the shares will get executed.

Trade Size: Should liquidity be a concern due to the size of the trade, breaking it up into smaller pieces and trading it over time may be appropriate. This is often referred to as a “market held order” or “market not held” order. This will generate a volume-weighted average price, or VWAP, a measure of the average price a stock traded at over a particular trading horizon, usually one day. VWAP is used often as a trading benchmark by investors who aim to be as passive as possible in their execution. Trading in smaller pieces over time will result in multiple transaction costs which may be more than the cost of one large transaction.


The FlexShares approach to index-based investing is, first and foremost, investor-centric and goal oriented. We pride ourselves on our commitment to developing products that are designed to meet real-world objectives for both institutional and individual investors. If you would like to discuss the attributes of any of the ETFs discussed in this report in greater depth or find out more about the index methodology behind them please don’t hesitate to call us at 1-855-FlexETF (1-855-353-9383).