This blog originally appeared on RealMoney.NEW YORK ( TheStreet) -- Investors are at last beginning to return to the equity markets, and ETFs are slated to play a bigger role than ever before. Wary of mutual fund managers and conscious of tax implications, many sidelined investors will be drawn to ETF strategies that promise to mitigate security-specific risk while maximizing exposure to particular assets. However, when it comes to structure, pricing and trading, these products are more complex than most investors initially realize. Whether you're a first-time ETF investor or just looking to use ETFs in a way you haven't tried before, here are four "rookie" mistakes that can be easily avoided.
1. Placing a Market Order in an Illiquid FundWith more than 1,000 products in the exchange-traded product universe, some funds have drawn copious amounts of attention while others -- sometimes seemingly inexplicably -- fail to attract investor interest. These lightly traded funds can be particularly dangerous to new ETF investors because liquidity is important to the pricing of exchange traded funds. If an ETF is lightly traded, it can easily be thrown off track by an unexpectedly large order that causes market price to deviate from underlying value. No one wants to buy an ETF at a premium only to sell it at a discount when things go bad. Nevertheless, there are times when somewhat-illiquid products offer compelling longer-term opportunities, and investors may want to get involved. The biggest mistake an ETF investor can make when placing an order in an illiquid ETF is to designate that trade as a "market order." Since market orders are concerned with immediate execution first (and price second), these are exactly the type of transactions that result in the most severe ETF pricing dislocations. If you need to place an order in an illiquid ETF, use a limit order at, or near, the last sale instead. > > Bull or Bear? Vote in Our Poll