5 Proven Strategies to Maximise ETF Returns

5 Proven Strategies to Maximise ETF Returns

Plenty of people are starting to get interested in all the advantages of putting their money in Exchange Traded Funds, also known as ETFs. Some of this investment’s notable traits are its transparency, the huge possibility to provide broad portfolio diversification, and its low cost.

Also, investors know that an ETF is significantly easier to trade, compared to other investments. It makes it ideal for both investment advisers and first-time investors.

However, some investors are still missing out on some essential ETF trading processes that will let them generate the most out of their investment portfolio. Here are several ways to maximise the buying and selling of ETFs:

Tip #1: Generate Reliable Quotes

Most online ETF brokerage firms can now provide real-time quotes for free. But some may only provide delayed quotes unless you pay an extra fee. Experts also recommend that investors must acquire access to the Level 2 quotes as much as possible for an additional cost.

It will allow you to get more market depth and know the number of shares that are on sale at specific prices. This information will also let you know which market participant does the selling and buying.

Tip #2: Utilise Limit Orders

For first time investors, the limit order refers to a request to sell or purchase security under a particular price point. If you plan to buy, you will only complete the order at a limit price or even lower. For an ETF, the experts suggest placing the order to buy at the asking price or even a little above it.

Most ETFs place the limit order at the offer price when buying the investment or bid price when selling. It allows you to have a better chance of completing the investment execution at the fairest price possible.

Tip #3: Avoid Worrying About Trading Volume 

Compared to individual stocks, an ETF will not be affected by low volume in terms of liquidity. The investment firms that take care of managing the funds always try to ensure that their trade is almost near its net asset value.

Experts also believe that an ETF presented at a very low volume on the stock market could be very liquid. It can also embrace large orders without affecting its price. They also believe that a high trading volume in an ETF could be a reliable sign of an activity happening between a bid and ask.

Tip #4: Learn More About Dividend Dates 

Typically, ETFs payout its respective dividends like what happens in stock trading. Like the usual stocks, the value of an ETF normally drops when trading the “ex-dividend,” which refers to the transaction after the scheduled date of record for the dividend payment.

It also happens before the actual date of the transmission of the dividend. It is usually allowable to trade during the specified period, as long as the investors know when they will receive a dividend.

Tip #5: Be Aware of Stop Loss Orders 

The usual stop-loss order prompts a sale if your ETF occurs at a particular price point. This technique often makes sense for the expert traders, but not exactly for the long-term investors.

When this happens, experts believe that it is the ideal way to start panic selling. They also believe that the investors mistakenly make conscious decisions to purchase or sell at a specific time and a determined price instead of using an automated mechanism.