Insights


Top Tips for Trading ETFs

  • ETFs can offer you the benefits of transparency, lower costs, and increased intra-day trading capabilities.
  • Here are some tips you should bear in mind when employing ETFs to make use of these products as effectively as possible, and to ensure successful, cost-effective execution.


Exchange traded funds (ETFs) are investment funds that trade just like stocks. Their unique structure means they can offer you the benefits of transparency, lower costs, and increased intra-day trading capabilities.

We believe that in order to make use of these products as effectively as possible and to ensure successful, cost-effective execution, there are a number of considerations that you should bear in mind when employing ETFs. We share our top tips below.

  1. Understand the distinction between the closing price and Net Asset Value (NAV) for valuation purposes. The closing price is the last price of the trading day, influenced by supply and demand. The NAV is calculated by the standard methodology in the Product Disclosure Statement (PDS) and is calculated based on the underlying securities’ closing prices. Hence the ETF’s closing price could diverge from the official NAV and is therefore not the official valuation of the ETF. 
  2. Always be conscious that an ETF’s liquidity is not limited to on-screen/on exchange representation. ETFs are as liquid as their underlying market. They have an open-ended structure, which means that units can be created and/or redeemed by the fund manager. If an ETF has not traded heavily during the day and you wish to buy or sell units, Market Makers/Authorised Participants help to ensure best available execution. Also, larger size orders can befacilitated by Market Makers/Authorised Participants.
  3. Take into account that not all Market Makers can price all ETFs equally. Each has its own specialisation and expertise. Always contact more than one Market Maker for an Over the Counter (OTC) transaction to find the best price. 
  4. Always use a limit order. When buying on an exchange, limit orders provide better price control and should normally be used in preference to market orders. 
  5. Try to trade when the underlying market is also trading. When trading in the Australian market, it may be the case that the underlying market is not open, for example US equity markets. So when buying an ETF where part or all of the underlying security’s market is closed, it is best to time the execution when a maximum of the underlying securities trade. All else being equal, this may help having lower bid-ask spreads at this point. 
  6. Try to avoid trading in the first and last 10 minutes of the trading day. When markets are opening and closing, there is generally more volatility in prices, and as a result wider market makers’ spreads. 
  7. Open, close and auction periods are often governed by specific rules. It is prudent to familiarise yourself with these rules. Placing a trade during these periods should generally be avoided unless the investor anticipating the trade is comfortable with those rules.