When most investors check data on liquidity, the steps are relatively straightforward. Check the bid price, the ask price, and the volume being traded. The smaller the spread and the higher the volume, the more liquid the product is. Simple, right? Yes – and no. In the case of a normal stock, the aforementioned is true. However, when considering the same for exchange-traded products (which include ETFs), the indicator has another layer to it.
Prior to exploring the depths of ETP liquidity, let us review a few key terms distinctive to these products:
• Authorized participant (AP) – Usually a large financial institution, like an investment bank that
interacts directly with the ETP issuer.
• Market maker (MM) – Financial institution that has a contract with the exchange to provide
constant bid/offer spreads throughout the day. In many cases, the AP is also the MM.
Unlike typical mutual funds and closed-end funds, ETPs have an inherent redemption mechanism, which helps keep the market price in line with its NAV. Like normal stocks, as the ETP price fluctuates throughout the trading day, the AP can step in and do one of the following:a. If the market price > NAV, the AP can buy the constituent stocks and simultaneously
exchange them for ETP shares, which can then be sold to investors.
b. In the opposite scenario, where NAV > market price, the AP can purchase ETP securities and
exchange them for the constituent securities, which it will then sell on the market to make a riskless profit.
Low volume on the actual ETP security does not indicate a lack of liquidity, and the investor is better served by checking the average daily volume of the stock(s) that constitute the ETP. As most of the underlying assets tracked by ETPs are highly liquid, most can draw tens of millions without having a negative impact on the liquidity of the underlying assets. This is essentially the case even if the ETP has a relatively small amount of assets under management.
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Please refer to the ETP Prospectus and Key Investor Information Document (“KIID”) before making any investment decisions.
This information originates from Leverage Shares Management Company Limited, which has been appointed by Leverage Shares Public Limited Company as provider of administrative and arrangerservices (the “Arranger”). Leverage Shares Public Limited Company registered address is 2nd Floor, Block 5, Irish Life Centre, Abbey Street Lower, Dublin 1, D01 P767, Ireland and is Registered in Ireland under registration number 597399. Leverage Shares Management Company Limited registered address is 116 Mount Prospect Avenue, Clontarf, Dublin 3, Ireland and is Registered in Ireland under registration number 596207.
The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. Leverage Shares Public Limited Company and the Arranger (together referred as “Leverage Shares”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information.
Opinions are current as of the publication date and are subject to change with market conditions.
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Information contained in this website is intended only to provide general and preliminary information and does not constitute any legal or investment advice, an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
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An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
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This website is accessible to retail investors in the UK for informational purposes only. Leverage Shares does not directly distribute to retail investors. Retail clients should not rely on any of the information provided and should seek assistance from an IFA for all investment guidance and advice.
Information contained in this website is intended only to provide general and preliminary information and does not constitute any legal or investment advice, an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
I acknowledge having my legal residence in the selected location.
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Information contained in this website is intended only to provide general and preliminary information to FCA regulated firms such as Independent Financial Advisors (IFAs) and Wealth Managers. This information does not constitute an offer to sell or solicitation to buy any security, including shares of any Exchange Traded Products (“ETPs”).
An investment in the promoted ETPs may only be made based on the ETPs´ legal documentation and will be subject to terms and conditions contained therein.
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions. The ETPs shown on this website are not available for sale in the U.S. or to a U.S. person.
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