Demand for exchange-traded funds remains strong, as ETFs have become a popular alternative to stocks. Year to date, investors have directed some $201 billion into ETFs, on track to reach the $243 billion invested during 2014, according toETF.com.
"ETFs provide investors access to the market in a very low-cost, diversified and transparent way," said Jane Leung, head of iShares precision exposures at BlackRock.
Leung said ETFs are a blend of both stocks and mutual funds. ETFs trade on an exchange like stocks and can be professionally managed like mutual funds.
Investors may buy and sell ETFs on their own timetable in what's called a market order. But they can also buy and sell ETFs at a fixed price, known as a limit order.
"Limit orders allow you to set a limit [a specific price], at where you wish to get the trade done," Leung said. "And you basically will get the trade processed at that price or better, depending on where the market is, so you do have to think about whether or not you're in a fast-moving or stable market."
With limit orders, if the share price never reaches the target price, the transaction will not be processed.
Another way to buy ETFs is via a stop order. "They're used primarily for investors looking to protect gains or minimize losses," Leung said.
The investor sets a specific price, and if the stock reaches that level, the order becomes a market order and is processed immediately.
"There's a little bit of risk there," Leung added. "Once your trade becomes a market order, it transacts at any price. If you're in a fast-moving market, that could be a price you weren't expecting," she added.
The New York Stock Exchange will discontinue stop orders in February of next year.
"It's a move to help investors be a little bit more thoughtful about how they are trading in the markets -- particularly in fast-moving markets," Leung said.
Source:http://www.thestreet.com/story/13386010/1/how-exactly-do-you-trade-exchange-traded-funds-ishares-jane-leung-explains-etfs.html
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