Dan Coulton, a senior analyst at Morningstar, points out that the transaction cost of Exchange traded funds is relatively low, only 0.4% to 0.5% a year, compared with 1.4% for traditional open-end funds. (kurton said investors need to pay brokerage fees to buy and redeem exchange traded funds, but they don't have to pay if they trade directly with a non commission mutual fund company. For very active investors, commissions may offset the low trading costs of ETFs.)
The reason why ETF can trade all day is that its pricing mechanism is different from that of traditional open-end fund. The traditional open-end fund is based on the net value of fund units after the daily closing as the trading price of the day. Exchange traded funds are different. Like stocks, their prices fluctuate with the supply and demand of daily trading. This may cause the price of ETF to deviate from the stock price of its investment. This is the same as closed-end funds that can place orders at any time.