How to take the risk out of ETF trades

Smaller investors can fall victim to price fluctuations when trading exchange-traded funds. Paul Amery reveals two ways you can protect yourself.

One benefit exchange-traded funds (ETFs) have over unit trusts is that ETFs can be traded throughout the day, whereas a unit trust usually has a single daily dealing point. But this also opens you up to more risks, given the computer-driven glitches we keep witnessing.

Last month, for example, Goldman Sachs flooded the US market with erroneous price quotes in share options, reportedly losing tens of millions. Shortly after, the Nasdaq stock exchange had to shut down for several hours after a price feed malfunctioned. And in the most famous incident involving rogue algorithms, the 2010 flash crash', the Dow Jones Industrial Average plunged 1,000 points in minutes before rebounding. Many stocks and ETFs saw temporary losses of nearly 100%.

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Paul Amery

Paul is a multi-award-winning journalist, currently an editor at New Money Review. He has contributed an array of money titles such as MoneyWeek, Financial Times, Financial News, The Times, Investment and Thomson Reuters. Paul is certified in investment management by CFA UK and he can speak more than five languages including English, French, Russian and Ukrainian. On MoneyWeek, Paul writes about funds such as ETFs and the stock market.