ETF trading rose to 40 percent of overall volume in stock trading Thursday, which should lead to market volatility, USA Today reported. The Federal Reserve's announcement that it would be decreasing its purchases of Treasury bonds and mortgages caused trading to surge in all ETFs, but especially volatility-linked ETFs such as iPath S&P 500 VIX Short-Term Futures ETN.

The volume in ETFs could signal market distress and a summer of volatility but the tumult could benefit ETFs, especially low-cost ETFs, which have become increasingly popular:

"In times of distress, investors use ETFs for liquidity and the ability to shift quickly," said Robert Trumbull, head of institutional ETF sales at State Street Global Advisors. The 2008 financial crisis "showed the benefits of ETFs as institutions looked for liquidity," he said.

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Edited by: Casey Quinlan


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