TRADING ETFS

TRADING ETFS

iShares ETFs provide access to a wide range of asset classes and markets, making them useful building blocks within investment portfolios. Just like individual shares, they can be bought and sold on exchange, Therefore, just like any investment, it is good to know what to consider when placing an order.

GUIDE TO BUYING AND SELLING ETFS

Timing matters
Timing matters
Consider avoiding trading near the market open or close (including auctions), and for Asian exposures, please remember to look at the underlying market(s) opening hours.
Seek price protection
Seek price protection
Especially during times of volatility: consider a limit order, which gives you more control over price so you will only trade at a price you are comfortable with.

CONSIDERATIONS WHEN TRADING ETFS

Time:

  • ETFs can be purchased and sold anytime during exchange trading hours.
  • Markets can be more volatile near open and close. Consider trading after the first, and before the last, 15 minutes of the day. There is also less market making activity during open and close, which can result in wider spreads.
  • Consider the underlying exposure. If you hold ETFs with underlying exposures trading on Asian markets, consider trading when those underlying markets are open, as the value of the ETF should be easier to calculate and the bid/offer spread tighter.

Order Type:

Use an order type which is consistent with your goals:

1. Limit order

The order is executed only if the price specified, or better can be achieved. This avoids an unexpected outcome at times of higher market volatility or potential wider spreads.

2. Market order

The order executes as soon as possible at the going price at the time. However, all or part of the trade is at risk of being traded at a value different from the last trade price especially in times of market volatility or lower liquidity when values may change quickly.

Due to the execution price risk, limit orders are generally preferable in most circumstances but remember if the limit price isn’t reached, the trade won’t execute.

ETF LIQUIDITY

Liquidity is always an important consideration when selecting any investment. The more liquid an investment, the easier and more cost effective it should be to trade. A less liquid investment can take longer to buy or sell and cost more to do so.

ETFs can be bought and sold during the trading day. When evaluating ETF liquidity, it is important to remember that ETFs differ from ordinary shares in one distinct way – ETFs are open-ended investment vehicles. This means that the number of shares in the ETF can actually increase or reduce to meet investor demand.

Although ETFs trade like shares, the liquidity of an ETF works very differently to the liquidity of a share. With an ordinary share, trading reflects the buyers and sellers interacting on an exchange at a price that represents the economic value of a company and investor supply and demand. The trading of the ETF also depends on the investor supply and demand of the ETF, but this only partially accounts for the liquidity of an ETF (on-screen liquidity). There are in fact multiple layers that make up the entire liquidity of an ETF:

ETF Liquidity

ETF Liquidity

Using simple illustrations and a metaphor about flowers, this video will help you understand ETF liquidity and the creation and redemption process that helps ETFs trade.

CHECK THE ESTIMATED ETF VALUE THROUGHOUT THE TRADING DAY

An estimated ETF price is published during the trading day for iShares Australian fixed income (IAF, IGBILB) and Australian Equity (IOZ, ILCISO).

This estimated price provides a reference point for the current fund value and can be viewed on the ETF product page.

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iShares ETFs are available on the following online trading platforms. Please click a logo to visit their website.

nabtrade BellDirect IG Trading Platform CommSec

A broker is a professional who buys and sells securities such as ETFs on a stock exchange on behalf of clients. You can buy iShares ETFs through a broker during daily trading hours. Please note that brokerage and other fees may apply.

The ASX has a tool to help you locate a stockbroker which you can access here.