ETF Trading Explodes

Trading of exchange-traded funds exploded last week in the wake of statements made by Federal Reserve chairman Ben Bernanke.

According to USA Today, ETF trading reached 40 percent of overall volume on Thursday, as the major indices dropped amidst comments by Bernanke that the Fed would rein in its loose money policy. During times of fear, investors gravitate towards ETFs.

Volume in the largest exchange-traded fund, SPDR S&P 500, was about 300 million shares last Thursday, its highest one-day volume in more than a year.

The newspaper reported that trading also surged in volatility-linked exchange-traded funds, such as iPath S&P 500 VIX Short-Term Futures ETN, which some traders use as short-term hedges, or to speculate on stock sell-offs.

“I’ve been tracking these metrics for more than four years, and I have never seen ETF volume this dominant in terms of dollar volume,” Chris Hempstead, director of ETF execution at WallachBeth Capital, told USA Today. In dollar terms, ETF volume hit $1 billion, he said.