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How to Buy Exchange Traded Funds

Buy Exchange Traded Funds (ETFs)

 

Exchange traded funds, or ETFs, are becoming extremely popular investments because they are easy to buy and cost effective to use.

Exchange traded funds are very similar to mutual funds, except that they trade on the exchange all day, and their prices are updated by the second based on the prices of their underlying assets. You can buy many different types of exchange traded funds, similar to mutual funds, but there are also leveraged exchange traded funds, which you can’t find in mutual funds.


Before You Buy

 

Before you buy an exchange traded fund, you need to do your homework. You want to make sure you know what types of stocks you want to buy and under what circumstances. There are many different types of ETFs that correlate to the kinds of stocks available – large cap, small cap, sectors, etc. Make sure you understand what you want to get into and the fundamentals of the index or sector.

Second, you need to do your due diligence on the ETF. This means checking the past performance, looking at the expense ratio, and just becoming familiar with the fund. Although many exchange traded funds follow the same indexes, they all have different expenses.


Ways to Buy Exchange Traded Funds

 

There are two main ways people buy exchange traded funds – either through a discount broker or a full service broker.

Your best bet is to go through an online discount broker and make the trade yourself. These funds are very straightforward and easy to understand, so you should have confidence in buying them.

You simply need to deposit an initial amount of money at the broker, place a buy order online, enter the ticker symbol of the ETF you’re interested in, and you’re done. Since ETFs are usually longer term trades, you can simply place market orders and be fine.

Your other option is to use a full service broker, but this actually takes more work and will cost you more money. All the steps are similar to using a discount broker, except you actually need to speak to someone to have your order placed, and they charge considerably higher fees for this service.


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