mechanism is fair, regardless of trading volume. But infrequently traded ETFs can be puzzling for investors, as my experience with HXS shows. When I saw the fund apparently down 0.5% on a day when the S&P 500 was up, I wondered whether I could do a little arbitrage myself, picking up the ETF for what seemed like a 1% discount at $12.43. Just for fun I threw in a market order for a couple of shares -- and it was promptly filled at $12.48. So much for my discount. The price is right The reason turned out to be simple: HXS has low trading volume and mine was the first order of the day. The price of the last trade ($12.43) was out of whack because it had been filled the day before. As soon as I placed my order, the market makers went to work and I got a price that was right around the NAV. The lesson is that you should ignore the price of the last trade and look only at the bid-ask spread. "If it looks like you can get the ETF at a discount, or sell at a premium compared to its last price, think again," Purvis says. "It's just that investors are hardwired to look at the last price of a stock to determine the value of the security. This is not applicable to ETFs." Purvis has an important tip for anyone trading ETFs, whatever their daily volume: " Always use limit orders .