Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Low Volume, High Liquidity ETFs

edited November 2023 in Fund Discussions
Can someone explan how all this works? Example. FPAG, newer ETF, ave daily volume 3800 shares. That is low. Say someone wanted to buy $240,000 (~10,000 shares) of the ETF. How would that work, place a limit trade but at what point/spread? Would the ETF fund mgmt then just issue more shares to meet the order (not sure if I stated that correctly)? The price would not be affected like it would it one bought a ton of stock in a company with a low float? Underlying investments in FPAG seem to be very liquid.

How would that work if one owned the quarter million in FPAG, the market got a schmeissing and you wanted to bail, how would that work, due to low volume would there be a problem?

How should one be thinking about a scenario like this?

Baseball Fan

Comments

  • edited November 2023
    ETFs have creation/redemption mechanisms for authorized participants (market makers, think of them as wholesalers). They can trade in-kind with stock/bond-baskets in lots of 50,000+ shares. So, if one wanted to buy multiple times of the daily volume, one would work with the ETF sponsor and/or authorized participant.

    Retail investors should keep orders at small fractions of the daily volume, e.g. 5% or 10%, and use limit-orders. No retail buyer should dump a market-order for 10,000 shares for something that traded only 3,800 daily. But this sort of thing does happen in pre/post-market (afterhours) trading that is very illiquid. A market-order of just a few hundred shares can be HUGE for afterhours. Some do it for manipulation that doesn't stick in normal trading.
  • As always, thank you for the reply YBB
Sign In or Register to comment.