Investments Ideas

Debunking Myths About ETF Liquidity

Say What?

We took a look at three common misconceptions that can contribute to increased costs. Explore each of them to find out more.

Myth: ETFs with the lowest expense ratios have the lowest total costs

Fact: Look Beyond the Expense Ratio

An ETF's expense ratio and trading costs are not correlated —so a low-fee fund may not have the lowest total cost of ownership (TCO).

To calculate an ETF's cost, a combination of technical and strategy-specific factors come into play:

  • Bid-ask spreads
  • Rebalance frequency
  • Rebalance size

Learn how to account for the true costs of owning an ETF before you make your next trading decision.

Myth: A single metric is all you need to gauge an ETF’s liquidity

Fact: Get the Complete Liquidity Picture

Investors often use point-in-time statistics like 30-day average trading volume to analyze an ETF's liquidity.

But a fund's liquidity profile can change in different markets. Your ETF due diligence should:

  • Look beyond on-screen liquidity
  • Analyze bid-ask spreads over various time periods, times of day and market environments
  • Evaluate the fund's profile, from daily trading volume to assets under management

Get the roadmap for navigating the twists and turns of an ETF's liquidity dynamics.

Myth: All ETF trade execution is the same

Fact: Choose the Right Execution Strategy

ETF investors can choose from a variety of execution strategies to control cost.

Because ETFs trade on an exchange with primary and secondary market liquidity, you have the flexibility to choose:

  • Order type, such as market or limit
  • Order execution, with help from institutional trading desks or authorized participants

Learn how to more effectively execute your ETF trades.

Access Additional Resources

Why Liquidity Matters

Learn the importance of factoring liquidity into your ETF due diligence.

Evaluate Total Cost of Ownership

Look beyond the expense ratio and consider trading costs to get the lowest TCO.

Liquidity Insights

See all of our liquidity resources to find answers to your liquidity questions.