Exchange-traded funds have become the default vehicle for millions of Americans seeking to build long-term wealth through low-cost, diversified portfolios. U.S. ETF assets surged to a record $13.46 trillion at the end of 2025, with net new flows topping $1.46 trillion for the full year, American Century reported.
The stampede into these products shows no signs of slowing, but Fidelity’s ETF Management & Strategy Team sees a problem hiding in plain sight. Buying the right ETF is only half the equation, and the other half is executing the trade without giving back returns at the point of sale.
The firm’s ETF Management & Strategy Team warns that small execution mistakes made during the trading process can quietly chip away at returns over time. Fidelity says the mechanics of how investors buy and sell ETFs may matter far more than many realize, especially as thousands of lower-liquidity funds flood the market.
Fidelity flags three ETF execution mistakes that cost investors money
Fidelity’s ETF Management & Strategy Team published guidance identifying three specific trading errors that chip away at returns every time an investor places an order. Each trap involves how a trade is executed, not which fund is selected, and all three are within the investor’s control to fix.
The three ETF trading traps Fidelity identified
- Ignoring the bid-ask spread: The spread is the gap between the highest price a buyer will pay (the bid) and the lowest price a seller will accept (the ask) for an ETF.
- Using market orders instead of limit orders: A market order executes at the best available price at that moment, which exposes investors to unfavorable fills on thinly traded funds.
- Trading near the market open or close: Volatility tends to spike during the opening and closing minutes of the session, causing the depth of available quotes to thin out and spreads to widen.
Beyond execution mechanics, Jay Spector, co-chief executive of EverVest Financial in Scottsdale, Arizona, told CNBC that some of the most common ETF mistakes, including chasing performance and following the “herd mentality” into rising assets, can quietly erode long-term returns.
Why the bid-ask spread is the hidden tax on every ETF trade
The first trap Fidelity’s team identified is the one investors are most likely to overlook entirely: the bid-ask spread. Every ETF has two prices at any given moment: the bid, which is the highest price a buyer is currently offering, and the ask, which is the lowest price a seller is willing to accept.
The difference between those two numbers is a real cost baked into every round-trip trade, and it functions like a small transaction fee that never shows up on a brokerage statement. For high-volume funds tracking major indexes, the spread is often just a penny or two per share, making it negligible for most investors.
Fidelity’s team recommends checking the bid-ask spread before placing any order, particularly for ETFs outside the most heavily traded names. Comparing the spread as a percentage of the share price gives a clearer picture of the true cost than looking at the dollar amount alone.
Limit orders protect ETF investors from paying more than they planned
The second trap Fidelity’s team flagged is the use of market orders, which execute instantly at the available price, rather than limit orders, which let investors set the maximum price they are willing to pay.
The distinction matters most for thinly traded ETFs, where even a modest order can move the prevailing price against you.
More than 3,100 of the ETFs currently listed in the U.S. trade with average daily volume below $5 million, placing them squarely in the low-liquidity category, where market orders carry the most risk, Fidelity noted.
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A buy limit order set at or below the current market price ensures you never pay more than your target, while a sell limit order set at or above the current price ensures you receive at least the minimum you’re willing to accept.
Investors need to prioritize transaction price over execution speed when placing ETF trades, Tiffany Zhang, vice-president of ETFs and financial products research at National Bank Financial, explained in an analysis of spread costs.
The trade-off with limit orders is that your order may not fill if the market never reaches your specified price, but the protection against overpaying outweighs that risk for most long-term investors.
Trading ETFs near the open or close can widen your costs significantly
The third trap Fidelity identified involves the timing of ETF trades during the trading session, with the opening and closing minutes of the market posing the greatest risk. Volatility tends to spike near the opening and closing bells, which causes the range of publicly quoted bid and ask prices to narrow in depth and widen in spread.
“The rise of ETFs has been great for investors, but convenience can also breed complacency,” Jon Ulin, managing principal of Ulin & Co. Wealth Management, told CNBC.
Large buy or sell orders placed during these windows can overwhelm the available order-book depth, creating what Fidelity described as adverse price dispersion. That means your trade may execute at prices scattered well above or below your expectation, simply because not enough counterparties are available at your desired level.
A common guideline among ETF trading professionals is to wait 15 to 30 minutes after the market opens before placing any ETF orders, allowing underlying securities time to stabilize. The same caution applies at the end of the session, when market makers begin pulling back on quotes to reduce their overnight exposure, American Century noted.
How to protect your returns on every ETF trade you place
Fidelity’s guide boils down to three practical adjustments:
- Ignoring the bid-ask spread
- Using market orders instead of limit orders
- Trading near the market open or close
With these adjustments, any investor can apply to their next ETF order, regardless of account size or experience level.
The firm’s ETF Management & Strategy Team laid out each step, detailing the specific mechanics that apply across brokerage platforms. These three adjustments will not eliminate all trading costs, but applying them consistently can reduce the invisible drag that chips away at your portfolio’s performance over years of compounding.
With ETF assets growing at a pace that few analysts predicted even five years ago, the difference between a careless trade and a disciplined one has never been worth more to your long-term returns.
Related: Fidelity spotlights options-based ETF for protection
