Why ETF liquidity matters in Singapore

In Singapore, ETFs are one of the most popular investment products. Liquidity is essential to ensure that these products continue to be successful and meet the needs of investors. For more info, check out Saxo bank group.

What is liquidity?

Investments, liquidity refers to how easy it is to buy or sell an investment without causing a significant price. If an investment is more liquid, it is easier to trade. It’s important because it affects investors’ ability to enter and exit the market without significantly affecting prices quickly.

Why does liquidity matter for ETFs?

ETFs are a popular investment choice, particularly in Singapore, because they offer investors exposure to a range of assets and markets at a low cost. However, one potential downside of investing in ETFs is that they can be less liquid than some other types of investments. It means that if investors need to sell their ETF s quickly, they may not be able to do so at a favourable price.

What can you do to mitigate the liquidity risk?

There are a few things investors can do to reduce the liquidity risk when investing in ETFs:

Invest only in ETFs listed on major exchanges – this will increase the chances that there will be someone who wants to buy or sell the ETFs at any given time.

Avoid investing in “illiquid” ETFs – these are ETFs that are not listed on a major exchange and have a small market capitalisation.

Use limit orders rather than market orders when buying or selling ETFs – this will help you get a better price if there is a lack of liquidity in the market.

ETF liquidity is an essential consideration for investors in Singapore, as it can affect if they can enter and exit the market quickly and at a favourable price. By investing only in ETFs that are listed on major exchanges, avoiding illiquid ETFs, and using limit orders rather than market orders, investors can reduce the liquidity risk when investing in ETFs.

Because ETFs are traded on the exchange like stocks, investors can buy and sell them whenever the markets are open. It makes it easy for investors to enter and exit the market and get the exposure they want to different asset classes.

However, not all ETFs are created equal when it comes to liquidity. Some ETFs are more liquid than others, and this can be due to several factors, including the size of the ETF, the type of assets it holds, and the liquidity of the underlying assets.

In Singapore, investors should consider several factors when looking for liquidity in an ETF. These include:

The size of the ETF

The larger an ETF is, the more liquid it will be. There is a larger pool of buyers and sellers in the market, which means that it is easier to buy or sell shares.

The type of assets it holds

ETFs that hold more liquid assets, such as stocks or bonds, will be more liquid than those with less liquid assets, such as real estate or commodities. It’s because there is a larger market for these types of assets, and they are easier to trade.

The liquidity of the underlying assets

The liquidity of the underlying assets is another essential factor to consider when looking for liquidity in an ETF. The more liquid the assets are, the easier it will be to buy and sell shares of the ETF.

What can you do to mitigate these liquidity risks? 

Here are a few tips:

• Make sure you understand an ETF’s liquidity before investing. Some ETFs are more liquid than others, so make sure you are comfortable with the level of liquidity before buying.
• Be aware of the potential liquidity risks associated with investing in Singapore-listed ETFs. If you are comfortable with these risks, then go ahead and invest; but if unsure, it may be best to stick to more liquid ETFs.