Investing in exchange-traded funds (EFTs) is a game-changer as they are not only simple to buy, but the concept is also relatively straightforward to understand if you move past the initial, daunting impression it gives.
In essence, EFTs are a collection of securities such as stocks, bonds or commodities; they’re all grouped together in a fund and traded on a stock exchange or electronic platform. You are able to buy into these funds in the same way you’d purchase shares in listed companies.
While ETFs are not suitable for all investors, their benefits are invaluable for those who understand how to use them: a simple, low-cost way to build a diversified portfolio. So how do you start to buy EFT as a beginner?
What to Know About Buying EFTS as a Beginner
Tip #1: Be Sure to Research and Know What You’re Buying
ETFs are traded just like stock. You can buy and sell them at any time during the day, just as you would with individual shares. However, they’re not all created equal, so before you start to buy EFTs, take the time to do some research and make sure to understand what you’re investing in.
Knowledge is power, and this is especially true when it comes to your money. Before you make any trades, you should understand the basics of how the EFT works. For example, if you are purchasing a fund that is composed of stocks, it’s likely to be higher risk.
Tip #2: Utilize Limit Orders to Avoid Overspending
One of the most basic things you should know as a beginner is how to place orders. You can obtain a quote for any security by simply putting in the ticker symbol, and exchanges will provide you with the current price.
However, you need to be careful, as the market might be going up or down when you place your order. To be safe, utilize a limit order instead of a market order.
With a limit order, you can set the price you want to buy or sell at and then allow the exchange to execute on its own. If the market goes above or below the price you’ve set, the trade won’t go through.
Tip #3: Trade During Lunchtime, When the Price for EFT has Settled
Since ETFs are traded like stocks, the prices move up and down throughout the day. For example, the ETF may start out at $40 per share, but by the end of the trading session, it may be worth $38.50 or $39.50 per share.
A lot of novice investors will place a trade shortly after the market opens and then wonder why they didn’t get the price they were expecting. To avoid this, wait until the lunchtime hour. The price will probably have settled and you’ll be able to get your trade done at the price you originally entered.
The Bottom Line: Starting Your EFT Journey as a Budding Investor
If you are just starting out with an EFT, you should be aware of these basic tips and you’ll be able to get started on your investing journey. Remember to do your research and know what you are buying, utilize limit orders and perhaps most importantly, don’t get caught up in the excitement of the market.
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