Why does ETF liquidity matter?

If a given ETF is not liquid enough, it makes buying and selling it harder, as there are fewer actors on the market willing to trade the ETF in question. This can widen bid-ask spreads, making it a bit more difficult to trade on movement gains. For buy-and-hold investors, this is less of a concern, though.

Usually you won’t have any problems with a big name, like the Vanguard Total Stock Market ETF or Invesco’s QQQ. However, a smaller niche ETF like a South-American Green Energy Small Cap ETF can have very low, if any liquidity.

Liquidity of US vs EU ETFs

Generally speaking, ETFs domiciled in the EU tend to be less liquid than their US counterparts. Therefore, you will likely encounter higher spreads when trading some EU ETFs (save for the bigger ones). This should be perfectly fine with buy-and-hold investors, but those trading these vehicles in the short term should take notice.

What else do you need to know about ETFs?

Want to learn more before deciding which is the best ETF for you? Check out these articles to deepen your knowledge:

• What is an ETF?
• What is the difference between mutual funds and ETFs?
• What is the difference between US and EU ETFs?
• What does an ETF portfolio mean?
• What is an ETF expense ratio?
• How to invest in ETFs?
• How to buy Vanguard ETFs?
• How to buy iShares ETFs?
• What are sector ETFs?
• What is passive investment?
• Are US ETFs only available for US residents?

How can I buy ETFs? 

For more info, click here to learn how to buy ETFs online.