As a result of the innate creation and redemption mechanism in every ETF product, ETFs are really as liquid as the underlying securities in the fund. The creation/redemption process allows advisors and investors to make block trades in an ETF, with no market impact. [What is an ETF? — Part 4: In-Kind Creations and Redemptions]
Large sponsors also offer capital markets services to help facilitate trades between market makers and other liquidity providers to purchase block ETFs through creation units at net asset value. This way, trades would go through without driving up share prices on the open market. [What is an ETF? — Part 7: Bid/Ask Spread]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.