{"id":173804,"date":"2020-07-07T13:15:00","date_gmt":"2020-07-07T17:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/etf-liquidity-considerations\/"},"modified":"2026-06-23T13:08:03","modified_gmt":"2026-06-23T17:08:03","slug":"etf-liquidity-considerations","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/etf-liquidity-considerations\/","title":{"rendered":"ETF Liquidity Considerations"},"content":{"rendered":"\n

New to Interactive Brokers?<\/strong><\/p>\n\n\n\n

\n
Open Account<\/a><\/div>\n<\/div>\n\n\n

<\/p>\n\n\n

The ETF Liquidity Pool<\/h3>\nSecondary market accounts for a limited portion of an ETF\u2019s overall liquidity\n\n\"\"\n\n\n\n
On screen orders typically traded directly in the market or through algorithms\n

Exchanges<\/h4>\n
    \n \t
  • NYSE<\/li>\n \t
  • BATS<\/li>\n \t
  • NASDAQ<\/li>\n<\/ul>\n<\/td>\n

Liquidity Providers (LPs) can make markets OTC\n

ETF Market Makers<\/h4>\n
    \n \t
  • Susquehanna<\/li>\n \t
  • Jane Street<\/li>\n \t
  • Virtu<\/li>\n \t
  • Citadel<\/li>\n<\/ul>\n<\/td>\n

Authorized Participants (APs) can also create or redeem shares directly with the ETF sponsor\n

Authorized Participants<\/h4>\n
    \n \t
  • Goldman Sachs<\/li>\n \t
  • BAML<\/li>\n \t
  • CITI<\/li>\n \t
  • Morgan Stanley<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    How ETFs Work: Creation\/Redemption<\/h3>\nETF shares can trade in the secondary market at a premium or discount to their Net Asset Values, which can create a catalyst for creations or redemptions.\n\n\"\"\n\nAs the ETF decreases in value relative to the portfolio NAV, arbitrageurs may be incentivized to buy the ETF, sell the underlying securities (for in-kind redemptions) and redeem the ETF shares.\n\nAs the ETF increases in value relative to the portfolio NAV, arbitrageurs may be incentivized to sell the ETF, buy the underlying securities (for in-kind creations), and create the ETF shares.\n\n \n

    Liquidity of Underlying Basket<\/h3>\nWhat goes into iNAV and Fair Value estimates?\n
      \n \t
    • Total transaction costs vary by asset class and location<\/li>\n \t
    • Foreign transaction taxes and currency conversions directly increase trading costs<\/li>\n \t
    • Impacts on domestic and non-domestic trading costs are displayed in the example below:<\/li>\n<\/ul>\n\"\"\n\n \n

      Total Cost of Ownership<\/h3>\nExpense ratio is not the only ETF cost component.\n\n\"\"\n

      Hypothetical Example<\/h4>\nTransaction costs represent a significant cost consideration for ETF users.\n\n \n\n\"\"","protected":false},"excerpt":{"rendered":"

      This lesson will discuss:
      \n\u2022 The ETF liquidity pool
      \n\u2022 How ETFs Work: Creation\/Redemption
      \n\u2022 Liquidity of Underlying Basket
      \n\u2022 Total Cost of Ownership<\/p>\n","protected":false},"author":1,"featured_media":170538,"parent":0,"comment_status":"open","ping_status":"closed","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[13643],"traders-academy":[13126,13128,13132],"class_list":["post-173804","trading-lessons","type-trading-lessons","status-publish","has-post-thumbnail","contributors-categories-state-street-global-advisors","traders-academy-intermediate-trading","traders-academy-level","traders-academy-trading-lesson"],"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\nArchives | Traders' Academy | IBKR Campus<\/title>\n<meta name=\"description\" content=\"Secondary market accounts for a limited portion of an ETF\u2019s overall liquidity. How ETFs Work and the Creation Redemption process. 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