Liquidity is one of the most important features attracting a diverse group of investors to exchange traded funds (ETFs). Here, we explain the mechanics of ETF trading and the roles played by key members of the liquidity ecosystem.
How Do ETFs Trade?
An exchange traded fund (ETF) is an investment vehicle whose shares trade intraday on stock exchanges at market-determined prices. ETFs are unique in that they offer two markets for trading — the secondary market, where most investors trade, and a primary market that supports the ETF’s liquidity and allows it to trade close to Net Asset Value throughout the day.