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Optimizing Trade Execution for ETFs of All Levels of Liquidity

The liquidity of the SPDR® S&P 500® ETF (SPY) sets the benchmark of implementation flexibility for a wide array of trading strategies. Trading less liquid ETFs efficiently often requires more attention to the details.

6 min read
Sales Execution and Institutional Strategy
Fixed Income ETF Sales and Analytics

Exchange traded funds (ETFs) are known for their tradability. With just over $10.6 trillion in secondary market notional volume in the first quarter of 2024 — more than the next five most actively traded ETFs combined — the robust liquidity of the SPDR® S&P 500 ETF (SPY) sets the benchmark of implementation flexibility for a wide array of trading strategies.1

Yet with 88.3% of all US-listed ETFs trading less than $25M per day, on average during Q1 of 2024,2 we’re mindful that trading the vast majority of less liquid ETFs efficiently can take a little more attention. We’re here to help.

As a liquidity leader, SPDR ETFs accounted for 33.6% of all notional trading volume of US-listed ETFs in Q1 of 2024.3 The SPDR Sales Execution and Institutional Strategy Team is a dedicated group of capital markets professionals focused on providing resources to help assess ETF liquidity and evaluate different execution strategies for the entire range of SPDR ETFs.

Determining Execution Objectives — One Size Does Not Fit All

As the number of ETFs in the marketplace has grown, investors have increasingly dedicated resources to evaluating ETF liquidity as a key component of their total cost of ownership (TCO). For all SPDR ETFs, our Sales Execution and Institutional Strategy Team can help you evaluate different execution strategies with the goal of optimizing investment objectives and TCO. The SPDR team can help assess:

Execution priorities

  • What is the timeframe for execution?
  • Is the creation/redemption window open?
  • Based on trade objectives, which is the correct type of order to use?

Trade considerations

  • Is the trade of a social size, or is it outsized in comparison with the ETF’s historical average volumes?
  • What is the trade size relative to the underlying market?
  • Are the underlying constituents open to trade due to local market hours or holidays?

Market environment

  • Is the market trading in an orderly fashion (i.e., volatility halts)?
  • Is the ADV drastically higher/lower than normal?
  • Is the ETF’s bid/ask wider than usual?
  • Is there currently an outsized premium/discount?

Match Execution Strategies with Portfolio Objectives

ETF secondary trading volume is often the first measure of ETF liquidity. However, investors with larger order sizes can source liquidity not displayed on the screen from liquidity providers. ETFs are at least as liquid as their underlying constituents at any given point in time. With ETFs representing a multitude of asset classes, geographies, sectors, and styles, the SPDR team is available to navigate different market environments and volatility regimes to properly evaluate execution strategies and meet your objectives.

Execution Strategy


High Urgency

Market Impact Sensitivity

Time Risk


Risk Trade

Client received price for the entire trade at once, and the liquidity provider takes on the risk of managing the result position. Liquidity providers can be put in competition for the trade, allowing for a clear measure of best execution. Client generally benchmarks vs. the quoted NBBO.





NAV Trade

Trade executed by buying or selling the underlying basket of securities and subsequently creating/redeeming ETF shares. The client typically receives a price reflective of executions for the underlying basket of securities plus or minus creation/redemption costs. Client generally benchmarks vs. end of day NAV.





Worked Order

Electronic order types using automated preprogrammed trading instructions. Orders can be measured relative to execution benchmarks based on volume, time or other metrics. Can be applied to both trading in the secondary market or trading the basket.





Trading the SPDR® MSCI USA StrategicFactors℠ ETF (QUS)

The SPDR® MSCI USA StrategicFactors℠ ETF (QUS) seeks to track the MSCI USA Factor Mix A-Series Capped Index, a Smart Beta index that blends low volatility, quality, and value exposures together in a single strategy and bridges the gap between active and passive management. As a result, QUS provides an opportunity for investors to rethink exposures and potentially maximize risk-adjusted returns more efficiently. The fund averaged roughly $3.8M in secondary notional value over the last 30 days, as of March 28, 2024.4

Investors seeking to trade orders of $15M–30M would represent a significant portion of the secondary volume but may consider trading the ETF on risk with a liquidity provider.

Let’s walk through execution considerations:

  • Execution Priority Trade Strategies: Can be developed to best align with the client’s execution priorities including cost, immediacy of trade, and anonymity. 
  • Trade Considerations: The order size represents a large percentage of QUS’s secondary trading volume, but a small percentage of the underlying basket volumes. The 30-day average daily aggregate volume of QUS’s underlying securities was more than $360.5B.5
  • Market Environment: Is there news or are there macro-related headlines that may impact market volatility or cause uncertainty for liquidity providers? The chart below shows the impact volatility had on QUS’s bid/ask spread.

Secondary Market Block Trades:

We can see in the chart below that risk trades in the $10M–40M range have occurred in QUS as investors have sourced liquidity from providers. Each example should be evaluated independently, as time of day and market environment can impact relative pricing. However, these block trades should serve as helpful historical examples of risk trades executed during different market environments.

On January 7, 2022, a client bought approximately $31.4M of QUS. At the time that the trade took place, the market was 128.29/128.33. For reference, the VIX Index was priced 18.8 at the time of the trade.

  • The client received an execution price equal to the national best bid/offer (NBBO) on the trade, implying 1.6bps of impact.
  • This trade was 3.7 times the fund’s Q1 2022 average value traded.

QUS: Secondary Market Block Trades

Date Time Size (shares) Value ($M) Trade Price Bid Ask Impact % Impact $ VIX Index
1/7/2022 15:30:51 245,000 $31,426,150 128.27 128.29 128.33 0.02% $0.02 18.8
1/21/2022 12:20:11 223,118 $27,363,192 122.64 122.53 122.62 0.02% $0.02 28.9
2/25/2022 12:30:30 192,554 $23,143,065 120.19 120.19 120.25 0.00%  $-    27.6
2/1/2022 13:27:59 186,567 $23,095,129 123.79 123.74 123.79 0.00%  $-    22
4/28/2021 11:15:33 145,496 $16,873,171 115.97 115.97 116.03 0.00%  $-    17.3

Source: Virtu/ITG, as of March 28, 2024.

The above is provided for illustrative purposes only. Each client’s circumstances differ and this client’s experience may not be representative of every client’s experience.

QUS: Secondary Market Information

Timeframe 5 Day 30 Day Year-to-Date
Spreads ($) 0.06 0.07 0.07
Spreads (%) 0.04% 0.05% 0.06%
Volume ($) 3,288,052 3,767,888 3,690,149
Volume (Shares) 22,704 26,636 29,949
Performance (%) 0.36% 4.64% 34.30%
Fund Flows ($) -2,877,000 7,063,900 96,413,700
Secondary-Primary Ratio 5:01 2.6:1 3:01
Average Premium/Discount (%) 0.04% 0.05% 0.06%

Source: Bloomberg Finance, L.P., as of March 28, 2024. Past performance is not a reliable indicator of future performance.

Standard Performance Information

Fund Before Tax As Of
Fund Before Tax As Of

Rely on the Expertise of the Liquidity Leader

With decades of trading experience and a wide variety of pre-trade liquidity analytics tools, the SPDR Sales Execution and Institutional Strategy Team is dedicated to working closely with clients to evaluate ETF liquidity and provide product and trading support.

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