ETF Liquidity: 3 Sources That Affect Trading Strategy

Note: This article is courtesy of

By Shundrawn A. Thomas

The short-lived but extraordinary market volatility of last August saw an unprecedented number of flash crashes or halts to trading due to technical glitches, that caused order pileups.

Dozens of exchange traded funds (ETFs) traded well below fair market value as orders went unfilled and, consequently, fair value pricing simply could not be updated due to lack of current information.

There seems to be a certain amount of continuing fear among ETF investors and their advisors that an ETF’s market price may not adequately reflect the total liquidity of the underlying portfolio. We believe such fear is largely unfounded, especially for long-term investors.