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Insights and Guidance on Trading ETFs and Dealing with ETF Liquidity Issues

April 15, 2024

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ETFs offer a flexible way to invest in a wide range of assets, combining the diversity of a mutual fund with the ease of trading a stock. However, understanding ETF liquidity and trading practices is crucial for effective portfolio management and investment outcomes.

Understanding ETF Liquidity

The Importance of Underlying Asset Liquidity

  • Liquidity is more about the assets within the ETF than the ETF itself. For example, ETFs that invest in highly liquid markets can easily accommodate investor entries and exits without significantly impacting the ETF’s price. This is the role of the fund’s market maker who provides buy and sell quotes in order to create intraday ETF liquidity. They can then work overnight with the fund’s authorized participants (APs) to create or redeem ETF shares in large units at the fund’s NAV.
  • The liquidity of the underlying securities dictates the true liquidity of the ETF, ensuring a straightforward trading experience for investors. For example, Rayliant’s ETFs—RAYE, RAYD, RAYC, and RAYJ—all invest in well-capitalized companies in very deep markets around the world. As a result, these funds can handle significant flows daily regardless of the existing fund size or daily volume.

ETF Size and Liquidity Misconceptions

  • Conventional wisdom suggests that larger funds are inherently more attractive due to perceived liquidity advantages. However, the ease of trading an ETF often depends on the liquidity of its components rather than the AUM of the fund.
  • Smaller ETFs, particularly those trading in highly liquid markets, can offer similar or even superior trading experiences compared to larger funds.
  • Rayliant is committed to offering capital markets support for its funds to maintain liquidity and tight spreads. We also provide direct support from our capital markets desk for any advisors that need support buying or selling shares of our funds.


Mark Schlarbaum
Managing Director
Head of Trading and Capital Markets

  • Launched over 24 ETFs, including many international, emerging markets and China strategies
  • Managed over $40 billion AUM of domestic and international equities, options, and futures including extensive experience in high-volume trading
  • Works directly with Rayliant clients to facilitate large format trades and offer service that clients will be hard-pressed to find with most issuers


Trading ETFs: Best Practices

Pre-Trade Preparation

  • Before trading, assess the ETF’s net asset value (NAV), market conditions, trading volume, and bid–ask spread to set realistic expectations.
  • Understand that displayed liquidity on trading platforms might not fully reflect the actual market depth, which can impact order execution.

Choosing the Right Order Type

  • Avoid market orders to prevent unfavorable execution prices, especially in volatile markets. Market orders are orders to buy or sell the share(s) at the best available price. Instead, use limit orders, which specify the maximum (when buying) or minimum (when selling) price you’re willing to pay or accept for a set number of shares. A limit order is not guaranteed to execute but does ensure you don’t pay more than the pre-determined price.
  • For large orders, explore the Immediate-or-Cancel (IOC) option or Request for Quote (RFQ) process to better manage execution and impact on the market.
  • If you’re trading a Rayliant ETF, consider calling our capital markets desk for guidance on structuring your trade—whether into or out of our funds.

Timing Your Trades

  • Conventional advice suggests avoiding trading at market open and close due to potential volatility and the lack of price discovery.

Handling Complex ETFs

  • Trading ETFs that involve illiquid assets or complex strategies requires additional caution. Working with experienced market makers and utilizing the trade desk’s expertise can help navigate these challenges effectively.


Trading ETFs efficiently and managing liquidity concerns require a combination of market knowledge, preparation, and strategic execution. By understanding the liquidity of underlying assets, selecting appropriate order types, and timing trades wisely, investors can enhance their trading experience and potentially improve investment outcomes. Utilizing professional resources, such as trade desks and market makers, can also provide valuable support in navigating the complexities of ETF trading.

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Investing involves risk, including the possible loss of principal. In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Narrowly focused investments and investments focusing on a single country may be subject to higher volatility.


Shares of ETFs are bought and sold at market price (not NAV) and are not individually redeemed from the funds. Brokerage commissions will reduce returns.


Carefully consider the funds’ investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the funds’ summary or full prospectus, which may be obtained by calling +1 (626) 407-4581 or by visiting Please read the prospectus carefully before investing.


The Rayliant ETFs are distributed by SEI Investments Distribution Co.