Understanding How ETFs Trade in the Secondary Market
An ETF's liquidity has everything to do with the underlying liquidity of the positions the ETF holds. This has a few implications: Pay attention to the liquidity on the holdings of your ETF--this will explain the spreads in the secondary market; Trade ETFs when the underlyings are liquid--avoid trading ETFs at the open or when overall market volume is lackluster; Avoid huge market orders, and stick to limit orders; Moreover, for huge trades, communicate directly with the market maker or your ETF trading desk.