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ETFs

How to Buy and Sell an ETF

One big advantage of ETFs is that you can buy and sell them throughout the day, just as you can stocks.

One big advantage of ETFs is that you can buy and sell them throughout the day, just as you can stocks. But that may also be a deterrent to investing in ETFs, particularly if you have never bought or sold a stock. It's really quite simple, though.

First, you need to open a brokerage account. Once you decide which ETF you want to buy, go to the section of the brokerage firm's Web site for trading stocks and ETFs. Insert the symbol (or get it from the Web site) and the number of shares you want to buy. From that point, you are offered a number of choices.

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Do you want to submit a market order? With a market order, your purchase (or sale) is filled at the next available price. Market orders usually go through promptly.

Do you want to submit a limit order? With a limit order, you instruct the broker to buy a stock only if you can get it at or below the price you set or sell it at or above the limit price. It's possible that your limit order may not be executed if the stock doesn't hit the price you've specified. You can always reset your limit.

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Given the volatility of the stock market nowadays, it's probably wise to employ a stop order to protect yourself from a big drop in the price of an ETF you own. There are two types of stop orders.

With a stop-loss order, your trade automatically becomes a market order once the designated stop price is hit. You may or may not get that price. And if the market is in free fall, as it was on May 6, you might sell for far less than the stop-loss price.

You may be better off using a stop-limit order in light of the potential danger of getting an unexpectedly low price. With this technique, your order goes live once the ETF hits your designated price. But the sale goes through only if you can get the limit price.

You can add other terms to your trades. For example, if you specify a day order and the trade does not go through that day, it is automatically canceled. Or your order can be good 'til canceled. When you're ready, press the execute button and start watching for an order report.

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