Exchange traded funds have become increasingly popular with all types of investors. While these versatile vehicles come in many “models,” their underlying mechanics are essentially the same. Here’s a look at how they’re structured and trade in the markets.
Jan 13, 2016
If you follow your investments closely, it’s important to understand the different prices and values listed for exchange traded funds.
It’s been said that liquidity is like oxygen: you only notice it when it’s gone. ETFs are generally liquid, and they can also play a role in restoring supply and demand in turbulent markets. However, there's no guarantee that an active market for shares of any ETF will develop or be maintained.
The belief that frequent trading of ETFs during a market downturn may trigger steeper losses is upside-down. In fact, ETF transparency may actually curb market uncertainty.
Bond ETFs, which trade on an exchange just like stock ETFs, have made it easier and less costly for investors to access virtually every sector of the bond markets. Learn more on bond ETFs.
For investors looking to potentially generate incremental yield, it is possible to both lend shares of ETFs and lend out the underlying securities of an ETF. Learn more about securities lending and ETFs.
