Ever wonder if your exchange traded funds (ETFs) are liquid enough for your taste?
You can check the liquidity yourself with the bid-ask spread. Although ETFs trade like stocks, trading volume does not give good insight into how easily they trade, because the underlying securities make the difference. Jesse Emspak for Investor’s Business Daily reports that liquidity is important when an ETF you want to sell hits a price target or isn’t performing at all.
If a stock is thinly traded, it will be harder to sell, and wider spreads indicate that it’s harder for issuers to meet demand. This shows that underlying stocks are less liquid. As a rule, small-cap growth stocks are usually less liquid than their large-cap counterparts. Market-makers and traders have your best interests in mind, since the larger the volume of the trade, the more money they make, too.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.