ETF Liquidity and Trading: What Investors Need to Know
Liquidity is one of the most important but often overlooked aspects of ETF investing. Understanding how ETF liquidity works, what spreads mean, and how to trade ETFs effectively can save you money and improve your investment experience. In this guide, we'll explore everything you need to know about ETF liquidity and trading.
Why Liquidity Matters
Liquidity refers to how easily you can buy or sell an ETF without significantly affecting its price. High liquidity means:
- Tighter spreads: Lower difference between buy and sell prices
- Easier trading: You can buy or sell large amounts easily
- Lower costs: Less slippage when entering or exiting positions
- Price efficiency: Prices more accurately reflect underlying value
For most investors, especially those trading in smaller amounts, liquidity is less critical. However, for larger trades or frequent traders, liquidity becomes increasingly important.
Most Liquid ETFs
These ETFs have the highest monthly liquidity, making them easy to trade:
Most Liquid ETFs
| ETF | Name | Monthly Liquidity | Spread | FUM |
|---|---|---|---|---|
| MQHG | Macquarie Core Global Equity (Hedged) Active ETF | 237.23% | 29.00% | $0.5M |
| J100 | Global X Japan Topix 100 ETF | 154.47% | 24.00% | $2.0M |
| FSUB | Vaneck Australian Fixed Rate Subordinated Debt ETF | 123.65% | 11.00% | $5.0M |
| TOLL | Betashares FTSE Global Infrastructure Shares Currency Hedged ETF | 103.31% | 42.00% | $4.9M |
| IBIT | iShares Bitcoin ETF | 101.86% | 36.00% | $6.5M |
| ECRD | Betashares Enhanced Credit (Geared) Complex ETF | 100.27% | 8.00% | $22.4M |
| WBND | Betashares Global Aggregate Bond Currency Hedged ETF | 95.18% | 15.00% | $482.6M |
| IACT | Ishares U.S. Factor Rotation Active ETF | 89.87% | 24.00% | $0.9M |
| SNAS | Global X Ultra Short Nasdaq 100 Complex ETF | 87.75% | 14.00% | $65.3M |
| BEMG | Betashares MSCI Emerging Markets Complex ETF | 49.30% | 40.00% | $12.9M |
| ULTB | iShares 20+ Year U.S. Treasury Bond (AUD Hedged) ETF | 48.70% | 10.00% | $1.4M |
| BBOZ | Betashares Australian Equities Strong Bear Complex ETF | 48.02% | 12.00% | $201.2M |
| LNAS | Global X Ultra Long Nasdaq 100 Complex ETF | 47.14% | 14.00% | $73.0M |
| AGGG | iShares Core Global Aggregate Bond (AUD Hedged) ETF | 40.98% | 11.00% | $1.0M |
| QFN | Betashares Financials Sector ETF | 39.55% | 16.00% | $114.9M |
High liquidity ETFs are typically the largest and most popular products, with significant daily trading volumes. This makes them ideal for investors who need to trade frequently or in larger amounts.
Lowest Spread ETFs
The spread is the difference between the buy (ask) and sell (bid) price. Lower spreads mean lower trading costs:
Lowest Spread ETFs
| ETF | Name | Spread | Monthly Liquidity | FUM |
|---|---|---|---|---|
| BILL | iShares Core Cash ETF | 1.00% | 14.60% | $1.1B |
| AAA | Betashares Australian High Interest Cash ETF | 2.00% | 13.95% | $4.8B |
| ISEC | iShares Enhanced Cash ETF | 2.00% | 7.84% | $515.6M |
| VGS | Vanguard MSCI Index International Shares ETF | 2.00% | 3.84% | $14.2B |
| A200 | Betashares Australia 200 ETF | 3.00% | 4.78% | $8.9B |
| IAF | iShares Core Composite Bond ETF | 3.00% | 3.86% | $3.5B |
| IVV | iShares S&P 500 ETF | 3.00% | 4.32% | $13.1B |
| NDQ | Betashares NASDAQ 100 ETF | 3.00% | 4.46% | $7.7B |
| VAS | Vanguard Australian Shares Index ETF | 3.00% | 3.48% | $22.6B |
| VHY | Vanguard Australian Shares High Yield ETF | 3.00% | 4.97% | $6.3B |
| GOLD | Global X Physical Gold | 4.00% | 5.84% | $6.1B |
| MQSD | Macquarie Subordinated Debt Active ETF | 4.00% | 18.51% | $374.0M |
| STW | SPDR S&P/ASX 200 ETF | 4.00% | 4.34% | $6.2B |
| SUBD | VanEck Australian Subordinated Debt ETF | 4.00% | 7.49% | $3.3B |
| VGAD | Vanguard MSCI Index International Shares (Hedged) ETF | 4.00% | 4.23% | $6.2B |
Tight spreads are particularly important for frequent traders or those making large trades. Even small spread differences can add up over time.
Trading Volume Leaders
These ETFs have the highest trading volumes, indicating strong investor interest and liquidity:
Trading Volume Leaders
| ETF | Name | Trading Volume | Monthly Liquidity | FUM |
|---|---|---|---|---|
| VAS | Vanguard Australian Shares Index ETF | $786.8M | 3.48% | $22.6B |
| AAA | Betashares Australian High Interest Cash ETF | $674.1M | 13.95% | $4.8B |
| VBND | Vanguard Global Aggregate Bond Index (Hedged) ETF | $638.3M | 16.38% | $3.9B |
| IVV | iShares S&P 500 ETF | $566.4M | 4.32% | $13.1B |
| VGS | Vanguard MSCI Index International Shares ETF | $545.4M | 3.84% | $14.2B |
| WBND | Betashares Global Aggregate Bond Currency Hedged ETF | $459.4M | 95.18% | $482.6M |
| A200 | Betashares Australia 200 ETF | $424.3M | 4.78% | $8.9B |
| IOZ | iShares Core S&P/ASX 200 ETF | $406.4M | 5.21% | $7.8B |
| GOLD | Global X Physical Gold | $356.3M | 5.84% | $6.1B |
| NDQ | Betashares NASDAQ 100 ETF | $342.8M | 4.46% | $7.7B |
| VHY | Vanguard Australian Shares High Yield ETF | $312.1M | 4.97% | $6.3B |
| STW | SPDR S&P/ASX 200 ETF | $267.2M | 4.34% | $6.2B |
| VGAD | Vanguard MSCI Index International Shares (Hedged) ETF | $261.7M | 4.23% | $6.2B |
| BGBL | Betashares Global Shares ETF | $261.3M | 7.85% | $3.3B |
| SUBD | VanEck Australian Subordinated Debt ETF | $248.6M | 7.49% | $3.3B |
High trading volume generally correlates with better liquidity and tighter spreads, though this isn't always the case.
Understanding Monthly Liquidity
Monthly liquidity is a measure of how much of an ETF's value trades each month. It's calculated as:
Monthly Liquidity = (Monthly Trading Value / FUM) × 100
Higher monthly liquidity generally means:
- Better liquidity for investors
- Tighter spreads
- More efficient price discovery
- Easier to buy and sell
Liquidity Statistics:
- Average Monthly Liquidity: 10.60%
- Median Monthly Liquidity: 5.76%
Understanding Spreads
The spread is the difference between what you can buy an ETF for (ask price) and what you can sell it for (bid price). For example:
- Ask price: $100.10
- Bid price: $100.00
- Spread: $0.10 (0.10%)
Lower spreads mean lower trading costs. Spreads are typically:
- Very tight (<0.05%): For large, liquid ETFs
- Tight (0.05-0.10%): For most popular ETFs
- Moderate (0.10-0.20%): For smaller or less traded ETFs
- Wide (>0.20%): For niche or very small ETFs
Best Practices for Trading ETFs
For Small Investors (<$10,000 per trade)
- Liquidity is generally less critical
- Focus on investment objectives rather than liquidity
- Use market orders during trading hours
- Most ETFs will have adequate liquidity for your needs
For Medium Investors ($10,000-$100,000 per trade)
- Consider liquidity, especially for less popular ETFs
- Use limit orders to control execution price
- Trade during market hours for best liquidity
- Consider breaking large trades into smaller chunks
For Large Investors (>$100,000 per trade)
- Liquidity becomes very important
- Focus on high-liquidity ETFs
- Use limit orders and consider working with brokers
- May need to trade over multiple days for very large positions
- Consider market impact of your trades
Trading During Market Hours
ETF liquidity is best during ASX trading hours (10:00 AM - 4:00 PM AEST). Trading outside these hours can result in:
- Wider spreads
- Lower liquidity
- Less efficient price discovery
For most investors, trading during market hours provides the best experience.
Market Orders vs Limit Orders
Market Orders:
- Execute immediately at current market price
- Best for liquid ETFs during market hours
- No price control
- Suitable for small trades in popular ETFs
Limit Orders:
- Set maximum buy price or minimum sell price
- More control over execution price
- May not execute if price doesn't reach your limit
- Recommended for larger trades or less liquid ETFs
Understanding Trading Volume
Trading volume indicates how much of an ETF is being bought and sold. High volume generally means:
- Better liquidity
- Tighter spreads
- More efficient pricing
- Easier to enter/exit positions
However, volume can vary day-to-day, so look at average volumes over time rather than single-day figures.
Liquidity and Investment Strategy
Your liquidity needs depend on your investment strategy:
Buy and Hold Investors:
- Liquidity is less critical
- Focus on investment objectives and fees
- Most ETFs will have adequate liquidity when you need to sell
Active Traders:
- Liquidity is very important
- Focus on high-liquidity ETFs
- Consider spreads and trading costs
- Monitor liquidity metrics regularly
Large Investors:
- Liquidity is essential
- May need to use multiple strategies for large positions
- Consider market impact
- Work with brokers for very large trades
Conclusion
Understanding ETF liquidity and trading is important for all investors, though the level of importance varies based on your trading size and frequency. For most long-term investors, liquidity is less critical than investment objectives, fees, and performance. However, for larger or more frequent traders, liquidity becomes increasingly important.
When evaluating ETF liquidity:
- Consider your trading size and frequency
- Understand spreads and their impact on costs
- Look at monthly liquidity metrics
- Trade during market hours when possible
- Use appropriate order types (market vs limit)
- Focus on high-liquidity ETFs if you're a large or frequent trader
For detailed liquidity and trading data on specific ETFs, visit their individual pages on our website, where you can see spreads, trading volumes, monthly liquidity, and more.
Important Disclaimer: The information on this website is general financial advice only and is issued by The Rask Group Pty Ltd. That means, the advice does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire any financial product. If you don't know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. Please read our Financial Services Guide before using this website.
