Debunking Five Common ETF Myths

Unlike a common stock, an ETF's liquidity is not determined by its average daily trading volume. Instead, an ETF's liquidity is primarily determined by the tradability of its underlying basket of securities. In many cases, this allows an ETF to trade in amounts exponential to its average daily trading volume.

ETF liquidity providers, commonly referred to as market makers, can create and redeem shares directly with an ETF issuer to meet demand from investors. They do this by interacting with the underlying basket of securities held by the ETF. Consequently, price changes of an ETF are generally based on the price and availability of the underlying portfolio rather than the average daily volume of the ETF itself. For this reason, a large-cap equity ETF may be more liquid than a small-cap or more narrowly focused ETF.

Spreads in ETFs often reflect the underlying liquidity of the securities they track. For ETFs that focus on highly liquid assets, such as large-cap equities, spreads are typically very narrow. Conversely, ETFs that track less liquid markets, such as emerging markets or niche sectors, may have wider spreads, but this mirrors the costs and risks of trading the underlying

Fuente original: Yahoo Finance (https://finance.yahoo.com/markets/options/articles/debunking-five-common-etf-myths-205202006.html)