Potential Pitfalls of Trading ETFs - dummies

Potential Pitfalls of Trading ETFs

Here are some facts about ETFs that you should consider before investing your hard-earned dollars in exchange-traded funds. You have to pay a commission every time you buy and sell an ETF. The good news: Trading commissions for stocks and ETFs (it’s the same commission for either) have been dropping faster than the price of desktop computers.

What once would have cost you a bundle, now — if you trade online, which you definitely should — is really pin money, perhaps as low as $4 a trade. However, you can’t simply ignore trading commissions. They aren’t always that low, and even $4 a pop can add up.

The fact that ETFs can be traded throughout the day like stocks makes them, unlike mutual funds, fair game for day-traders and institutional wheeler-dealers. For the rest of us common folk, there isn’t much about the way that ETFs are bought and sold that makes them especially valuable.

Indeed, the ability to trade throughout the day may make you more apt to do so, perhaps selling or buying on impulse, which (although it can get your endorphins pumping) is generally not the most profitable investing strategy.