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ETFs 114: Exchange-Traded Fund Best Practices

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1.
Which practice DOES NOT stand to minimize costs when trading exchange-traded funds?
Choose wisely. There is only one correct answer.
Using market orders. High liquidity and trading near the middle of the day allow investors to capitalize on the thinnest bid/ask spreads, which minimizes costs.
2.
What trading practice keeps exchange-traded fund prices close to their net asset values?
Choose wisely. There is only one correct answer.
Arbitrage. With arbitrage, traders take advantage of the difference between the market price and the net asset value.
3.
Which type of order will sell a position at a specified price only once a predetermined limit (stop) has been triggered?
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Stop-limit. A stop-limit order becomes a limit order once a stop has been triggered.
4.
Bid-ask spreads on exchange-traded funds tend to be widest near _______.
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Market-open.
5.
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.