Volume Vs. Liquidity

Published May 1, 2024

Low trading volume of an ETF does not mean poor liquidity

The daily trading volume of an ETF is not an accurate reflection of its liquidity. This is a result of the involvement of the designated market maker whose core responsibility is to maintain an inventory of units of the ETF and provide liquidity for investors to buy and sell when they choose to do so, without concern. The market maker ensures there is always a buyer or seller for the investor at an accurate price.

The designated market maker will also attempt to maintain a tight bid/ask spread so that the price of the ETF closely approximates the net asset value (NAV) per unit throughout the trading day.

Generally, the only factor which could affect the liquidity of an ETF is the liquidity of its underlying portfolio of securities. That is to say, if the ETF invests in securities that are difficult to buy or have low supply, then the market maker may have difficulty buying or selling those securities. This could affect their ability to subscribe for, or redeem, units of the ETF.

Market orders are not always executed at the listed bid/ask prices

There is no guarantee that the order you place with an online broker or advisor will be executed at the listed bid/ask prices. This is one of the reasons why it is highly recommended that investors use a limit order when buying or selling ETFs, regardless of the size of the order. A limit order sets a price maximum/minimum with which you are willing to buy or sell a quantity of units of the ETF. This protects you from periodic price swings that may occur during the trading day.

Prices can even move substantially between when an order is placed and when it is executed, particularly if there is breaking news in the market on a particular sector or security within the ETF’s portfolio. By using a limit order, you can specify the exact price at which your trade order can be filled. If the bid/ask prices or NAV per unit do not meet the limit order specified price, the order will not be filled. A buy limit order will be executed only at the limit price or a lower price. A sell limit order will be executed only at the limit price or a higher one.

DISCLAIMERS

Commissions, management fees, and expenses all may be associated with an investment in products (the “Global X Funds”) managed by Global X Investments Canada Inc. The Global X Funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain Global X Funds may have exposure to leveraged investment techniques that magnify gains and losses which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the prospectus. The Global X money market funds are not covered by the Canada Deposit Insurance Corporation, the Federal Deposit Insurance Corporation, or any other government deposit insurer. There can be no assurances that the money market fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the Funds will be returned to you. Past performance may not be repeated. The prospectus contains important detailed information about the Global X Funds. Please read the relevant prospectus before investing.

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.

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