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Top Tips for Trading ETFs

ETFs may provide the benefits of transparency, lower costs, and increased intra-day trading capabilities. Here are some tips to consider when employing ETFs to make use of these products as effectively as possible, and to ensure successful, cost-effective execution.

Exchange traded funds (ETFs) share a lot of similarities with mutual funds, but can be traded like stocks. They are a diversified, low-cost and tax-efficient way to invest. Discovering how to trade allows you to take advantage of price movements and seek the best execution.

Understanding the Basics

Closing Price vs. Net Asset Value (NAV): ETFs are traded on the exchange during the day, so their price fluctuates with the market supply and demand, just like stocks and other intraday traded securities. The NAV is calculated based on the underlying securities’ closing prices. Hence the ETF’s closing price can diverge from the official NAV and is therefore not the official valuation of the ETF.

Liquidity is not limited to what you see on-screen/on exchange: ETFs are as liquid as their underlying market. Unlike individual stocks, which usually have a fixed supply of shares in circulation on the secondary market, ETFs have an open-ended structure and can be created/redeemed based on investor supply and demand.

Best Practices When Trading ETFs

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 trading ETFs on an exchange. Below are our top tips.

Order Type

Always use a limit order. When buying on an exchange, limit orders provide better price control, consider using limit or stop-limit orders (especially in volatile markets).


Try to trade when the underlying market is also trading. For Hong Kong investors, it may be the case that the underlying market is closed. When buying an ETF where part or all of the underlying security’s market is closed, it may be advantageous 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.

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.

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.