how to evaluate an ETF's trading volume

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seugene
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how to evaluate an ETF's trading volume

Post by seugene » Thu Jan 10, 2019 2:21 pm

I am looking at USFR (WisdomTree Floating Rate Treasury ETF), and I wonder if trading volume is too low. For example, https://marketchameleon.com/Overview/USFR/DailyCharts/ and https://www.nasdaq.com/symbol/usfr show pretty sparse trades here and there, sort of alarming. Average trading volume is 1.3 million shares a day though (https://finance.yahoo.com/quote/usfr?ltr=1), so maybe it's not bad at all. How do I look at this? Is this a problem or not?

livesoft
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Re: how to evaluate an ETF's trading volume

Post by livesoft » Thu Jan 10, 2019 2:34 pm

I don't see a problem. Because the price is around $25, a 1 cent spread is 0.04%. A 1 cent spread on BIL is 0.01%.

How to evaluate? Look at the order book and compare to the order book of something that you are familiar with? Here is a screen capture of USFR:
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jhfenton
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Re: how to evaluate an ETF's trading volume

Post by jhfenton » Thu Jan 10, 2019 3:20 pm

seugene wrote:
Thu Jan 10, 2019 2:21 pm
I am looking at USFR (WisdomTree Floating Rate Treasury ETF), and I wonder if trading volume is too low. For example, https://marketchameleon.com/Overview/USFR/DailyCharts/ and https://www.nasdaq.com/symbol/usfr show pretty sparse trades here and there, sort of alarming. Average trading volume is 1.3 million shares a day though (https://finance.yahoo.com/quote/usfr?ltr=1), so maybe it's not bad at all. How do I look at this? Is this a problem or not?
USFR is a large ($1.32 B) and very liquid (>$38 MM per day) ETF with a consistent $0.01 spread. It is clearly in the upper tier of ETF size and liquidity.

What are you using as a basis of comparison that you would wonder if trading volume is too low?

(I have low six figures invested in Vanguard's newish VFVA/Vanguard US Value Factor with $30 MM in assets and $663 K in average daily volume. And it trades just fine too. Someone on bogleheads.org recently placed a seven-figure buy in VFVA without moving the price.)

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Re: how to evaluate an ETF's trading volume

Post by sunnywindy » Thu Jan 10, 2019 3:54 pm

seugene wrote:
Thu Jan 10, 2019 2:21 pm
I am looking at USFR (WisdomTree Floating Rate Treasury ETF), and I wonder if trading volume is too low. For example, https://marketchameleon.com/Overview/USFR/DailyCharts/ and https://www.nasdaq.com/symbol/usfr show pretty sparse trades here and there, sort of alarming. Average trading volume is 1.3 million shares a day though (https://finance.yahoo.com/quote/usfr?ltr=1), so maybe it's not bad at all. How do I look at this? Is this a problem or not?
ETF.com has the best trade viewer (that I have found) for all ETFs. Right now USFR has a 1 cent spread.
https://www.etf.com/USFR#tradability
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seugene
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Re: how to evaluate an ETF's trading volume

Post by seugene » Thu Jan 10, 2019 4:01 pm

Thanks for all the replies so far.
Is it accurate to say that as long as the bid/ask spread is low, does not matter what the trading volume is?

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Re: how to evaluate an ETF's trading volume

Post by alex_686 » Thu Jan 10, 2019 4:04 pm

seugene wrote:
Thu Jan 10, 2019 4:01 pm
Is it accurate to say that as long as the bid/ask spread is low, does not matter what the trading volume is?
It is a low secondary concern. Low volume indicates that the ETF is not healthy, a signal it may be shut down. Also, low volume ETFs can freeze up during times of crisis. Or maybe not. More of a yellow flag indicating more research is needed.

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Re: how to evaluate an ETF's trading volume

Post by jhfenton » Thu Jan 10, 2019 4:21 pm

seugene wrote:
Thu Jan 10, 2019 4:01 pm
Thanks for all the replies so far.
Is it accurate to say that as long as the bid/ask spread is low, does not matter what the trading volume is?
The trading volume is one aspect to consider along with AUM, but USFR has large and deep trading volume. It is not a mega-ETF like SPY, VOO, or even VWO. But tens of millions of dollars per day is a substantial volume by any standard.

I, at least, was a bit thrown by you asking about an apparently thinly-traded security, that, when I look it up, trades tens of millions of dollars per day.

The spread is determined as much or more by the underlying assets as by the trading volume.

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Re: how to evaluate an ETF's trading volume

Post by grabiner » Fri Jan 11, 2019 10:39 pm

seugene wrote:
Thu Jan 10, 2019 4:01 pm
Thanks for all the replies so far.
Is it accurate to say that as long as the bid/ask spread is low, does not matter what the trading volume is?
The trading volume may matter if you want to make a large trade. If an ETF offers a small spread but only 500 shares are available at the ask, you might have to pay a higher price to buy 5000 shares, or else wait a long time. (I have encountered this before even at lower volumes; I once wound up selling 300 shares of VSS in five lots over half an hour.)
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