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Updated 2mo ago.
Updated 2mo ago.
Liquidity measures how easily an asset can be bought or sold quickly without significantly affecting its price. A liquid asset trades in high volumes with a narrow spread between the buy and sell price.
The ETF XIU.TO (iShares S&P/TSX 60) is very liquid: it trades millions of units per day with a bid-ask spread of only $0.01. You can buy or sell instantly at the displayed price.
In contrast, a small ETF like some unpopular thematic ETFs may have a daily volume of only a few thousand units and a spread of $0.10 or more. This means you "pay" a hidden cost on every transaction.
Liquidity is a factor often overlooked by beginners. An illiquid ETF can cost you significantly in spreads, especially for large amounts. Favour ETFs with high daily volume and a low spread. Vanguard ETFs (VFV.TO, VEQT.TO) and iShares ETFs (XIC.TO, XIU.TO) are generally very liquid.