Before You Start
- Basic understanding of ETFs (Exchange Traded Funds) and how they are traded
- Access to a European brokerage account (e.g., DEGIRO, Trade Republic)
- Comfort using ETF screeners and broker data
Time needed: 25–40 minutes
What you'll need: Internet access, a DEGIRO or Trade Republic account, a calculator or spreadsheet for quick math
ETF liquidity is one of the most overlooked factors by retail investors in Europe. Yet, overlooking liquidity can lead to unnecessary costs, poor execution, and even frustration when trying to exit positions. In this guide, you’ll learn exactly what ETF liquidity means, why it matters, and how to check it step-by-step using real European brokers like DEGIRO and Trade Republic. We’ll finish with a practical checklist you can use before every ETF purchase.
Step 1: Understand What ETF Liquidity Means (and Why It Matters)
What to do: Grasp the two pillars of ETF liquidity: trading volume (how often the ETF itself trades) and underlying asset liquidity (how easily the ETF’s holdings can be bought or sold).
Why it matters: Liquidity directly affects the bid-ask spread—the difference between what buyers pay and sellers receive. A wider spread means you pay more (or receive less) per trade. For example, if you buy €10,000 of an ETF with a €0.10 spread, you lose €10 instantly (0.1% of trade). If the spread is €0.50, you lose €50 immediately.
What can go wrong: Low liquidity can mean:
- Slippage: Your order executes at a worse price than expected.
- Difficulty exiting: Selling large positions moves the price against you.
- Extra costs: Wide spreads reduce long-term returns.
Pro Tip
Even if an ETF has low trading volume, it may still be liquid if its underlying assets (e.g., large-cap stocks) are highly liquid. But beware: niche or synthetic ETFs on illiquid assets can be risky.
Step 2: Check the ETF’s On-Exchange Trading Volume
What to do: Look up the average daily volume of your chosen ETF on your broker’s platform or a financial data site (like justETF, Xetra, or your broker’s ETF screener).
- On DEGIRO: Search for your ETF (e.g., iShares Core MSCI World UCITS ETF – ISIN: IE00B4L5Y983). Click the ETF, then look under “Trading Volume” or “Market Data” for daily turnover in EUR.
- On Trade Republic: Search for the ETF, tap its profile, and scroll to “Market Details” for volume figures.
Why it matters: High average daily volume (e.g., €2 million+) usually means tighter spreads and faster execution. For smaller ETFs, a volume below €100,000/day can signal higher risk of poor execution.
What can go wrong: Thinly traded ETFs may show large price jumps between trades, and your order could move the price.
Pro Tip
Compare volume across different trading venues (Xetra, Euronext, Borsa Italiana, etc.). Xetra is often the most liquid venue for European ETFs.
Step 3: Review the Underlying Asset Liquidity
What to do: Find out what assets the ETF holds and how liquid those are on their primary exchanges.
- Example: For the iShares Core MSCI World UCITS ETF (IE00B4L5Y983), underlying assets are large-cap stocks like Apple, Nestlé, and Siemens—highly liquid.
- For bond or thematic ETFs: Check if the underlying bonds or niche assets (e.g., frontier-market stocks) are thinly traded.
Why it matters: Even if the ETF itself doesn’t trade much, market makers can create/redeem shares easily if the underlying assets are liquid. This keeps spreads tight. But with illiquid assets, spreads widen, and you may see price deviations from Net Asset Value (NAV).
What can go wrong: Synthetic or leveraged ETFs tracking illiquid sectors (e.g., high-yield bonds, crypto, small-cap emerging markets) can show large price swings and wide spreads.
Pro Tip
Use justETF or the ETF provider’s website to download the full holdings list. Scan for obscure or low-capitalization assets as a red flag.
Step 4: Compare Bid-Ask Spreads Across Venues and Times
What to do: Check the ETF’s bid-ask spread in real time on your broker’s platform, ideally during local market hours (e.g., 9:00–17:30 CET for Xetra).
- On DEGIRO: Search for the ETF, click “Buy/Sell,” and observe the live bid/ask prices. Calculate the spread: (Ask − Bid) / Midpoint × 100 = Spread %.
- On Trade Republic: Tap “Buy,” note displayed buy and sell prices, and do the same calculation.
Example: If the bid is €95.10 and the ask is €95.14, the spread is (€95.14−€95.10)/€95.12 = 0.04%, which is tight and excellent.
Why it matters: Narrow spreads mean lower trading costs. Spreads widen after hours or on less liquid venues.
What can go wrong: Placing market orders outside main trading hours can result in poor fills and high costs.
Pro Tip
Always place limit orders, not market orders, for illiquid ETFs. This lets you control your execution price and avoid surprises.
Step 5: Check the ETF’s Listing Venues and Choose the Most Liquid One
What to do: Identify all European exchanges where your ETF is listed (e.g., Xetra, Euronext Paris, Borsa Italiana). Use justETF or the provider’s site for full details.
- On DEGIRO: When searching for an ETF, select the exchange with the highest volume—Xetra is usually best for German, Dutch, and pan-European investors.
- On Trade Republic: Most ETFs are only available on the L&S Exchange, but you can still check if the ETF is listed elsewhere for comparison.
Why it matters: Liquidity can vary dramatically across venues. For example, the iShares Core MSCI World UCITS ETF (IE00B4L5Y983) trades far more volume on Xetra than on Euronext Paris.
What can go wrong: Buying on a low-volume venue can mean wider spreads and worse execution.
Pro Tip
If your broker offers access to multiple venues, always choose the one with the highest daily turnover in EUR for your ETF.
Step 6: Use a Practical ETF Liquidity Checklist Before You Buy
What to do: Before placing a buy order, run through this quick checklist:
- Is the ETF’s average daily trading volume above €500,000 on your chosen venue?
- Are the underlying assets highly liquid (e.g., large-cap stocks, major government bonds)?
- Is the bid-ask spread consistently below 0.15% during main market hours?
- Are you trading on the most liquid available exchange?
- Are you using a limit order to control execution price?
Expected outcome: You should now be able to spot red flags before you buy, avoid unnecessary costs, and ensure smooth execution for your ETF trades.
Pro Tip
For more step-by-step trading guidance, see our guide on buying the CSPX ETF on Trade Republic or DEGIRO.
Common Mistakes When Evaluating ETF Liquidity
- Ignoring the spread: Focusing only on trading volume and forgetting to check the real-time bid-ask spread can be costly.
- Trading outside market hours: Spreads widen and liquidity drops after hours—always trade during main exchange times.
- Assuming all ETFs are equally liquid: Even popular indices can have illiquid copies—always check your specific ETF’s data.
- Using market orders for illiquid ETFs: This can lead to poor fills and unnecessary losses.
- Overlooking the underlying assets: An ETF with liquid trading but illiquid holdings can still be risky.
Next Steps
- Apply this checklist to your next ETF trade and compare execution quality across venues.
- Explore how currency conversion fees can affect your ETF costs, especially for USD-denominated funds.
- Learn about using dollar-cost averaging with European brokers to reduce the impact of spreads over time.
- Keep a record of your trades and note the spreads and execution quality for future reference.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. Always do your own research and consider consulting a qualified financial advisor before making investment decisions.