Meaning :
An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day.
Since exchange-traded funds (ETFs) are bought and sold just like stocks it’s important to be familiar with the fundamentals of order placement.
When buying or selling an ETF, the quality of your trade’s execution will be impacted by the type of order you place. A clear understanding of various order types will help you to achieve the results you want.
Market
An order to buy or sell an ETF at the market’s current best available price.
Typically ensures immediate execution.
Order may get filled at different prices and times, especially in fast moving markets.
Limit
An order to buy or sell an ETF with a restriction on the maximum price to be paid or the minimum price to be received.
Also known as the “limit price.”
If filled, your order will only be executed at your specified limit price or better. No assurance of order execution.
Stop Limit
Combines a stop order and a limit order to buy or sell an ETF at a specified limit price (or better) only after the stop price has been reached.
If filled, your order will only be executed at limit price or better.
Also provides an order entry or exit threshold.
No assurance of order execution.
Short Sale
A trade that involves selling an ETF you do not own because you expect to purchase it back later at a lower price.
A decline in the ETF’s price provides the potential for a profit.
An increase in the ETF’s price could force you to buy it back at a substantially higher price you sold it for, resulting in a loss; your account will accrue margin interest for the amount of time the ETF is borrowed.