ETF Spreads and Volumes - Fidelity (2024)

ETFs trade like stocks. ETFs trade nothing at all like stocks.

Both of these statements are true, and understanding how that can be the case is critical to becoming a good ETF trader.

The bid/ask spread

The place to start with understanding how ETFs trade is to understand how individual stocks trade.

At any given time, there are 2 prices for any common stock: the price at which someone is willing to buy that stock (the “bid”) and the price at which someone is willing to sell (the “ask”). The difference between these 2 prices is called the “spread.”

The reason spreads exist is because, in any open market, folks try their best to negotiate the best prices they can get. If you’re looking to buy, you’ll naturally want to see if someone is willing to sell for less than the last traded price.

Conversely, if you’re selling, you’ll naturally hope that someone will bend and be willing to buy it for more than the last quoted price. Spreads are simply the result of buyers and sellers negotiating on prices.

For example, let’s imagine XYZ stock is trading with the bid at $49.90 and the offer at $50.10. The spread is therefore $0.20. If someone asked you what a share of XYZ was “worth,” you would probably choose the midpoint, $50.00, or maybe the last price at which you can see a trade actually happened.

But if you wanted to buy XYZ right now, you would probably have to pay $50.10. If you wanted to sell right now, all you’d get is $49.90. Those are the prices you’d get if you enter a market order into your brokerage window.

The wider the spread, the more it will cost you to trade XYZ.

Bid/ask spreads are so important to ETF trading because, unlike a mutual fund, which you buy and sell at net asset value, all ETFs trade like single stocks, so ETFs trade with bid/ask spreads. That’s the price of the “exchange-traded” in the name.

Spreads widen and narrow for various reasons. If the ETF is popular and trades with robust volume, then bid/ask spreads tend to be narrower. But if the ETF is thinly traded, or if the underlying securities of the fund are highly illiquid, that can also lead to wider spreads.

Overall, the narrower the bid/ask spread, the lower the cost to trade.

Volume and market impact

Bid/ask spreads aren’t the only factor to consider when trading, whether you’re trading stocks or ETFs. You also have to look at volume and so-called market impact.

Volume is the number of shares that trade on any given day. The higher the volume, the better. For example, if XYZ trades, on average, 10 million shares per day, it will be easier to trade than something that trades 100 shares per day. Note, however, that spreads could be tight on both, which could mislead unwitting investors to conclude that both securities are equally liquid.

Typically, the number of shares offered on the bid or the ask will be small—sometimes 100 shares, sometime more, but rarely a huge amount. If you try to buy 10,000 shares of something that only trades 100 shares per day, you could have trouble.

To go back to our XYZ example, someone might be willing to sell you 100 shares of XYZ at $50.10, but if you want to buy 10,000 shares, you might have to pay $50.25 or more. The amount that you drive up the price of something you are trying to buy is called the market impact.

How does that impact ETF trading, and how are ETFs different?

Because ETFs trade on exchanges like stocks, they have bid/ask spreads, volumes, and potential market impact, too. All else equal, you will do better trading something that has high volume and a tight bid/ask spread. In this way, trading ETFs is just like trading a stock.

But ETFs have a critical difference that dramatically alters the playing field for investors.

With single stocks, there is no way to create new shares. If someone wants to buy 10,000 shares of XYZ, they must find another investor who wants to sell. If no one wants to sell, they might have to pay a lot of money to get that trade done.

But ETFs are different: A group of institutional investors called authorized participants (APs) are allowed to create new shares of an ETF to meet demand. So if you want to buy a lot of an ETF—say 50,000 shares—an AP might create those shares to fill your order.

ETF Spreads and Volumes - Fidelity (2024)

FAQs

ETF Spreads and Volumes - Fidelity? ›

If the ETF is popular and trades with robust volume, then bid/ask spreads tend to be narrower. But if the ETF is thinly traded, or if the underlying securities of the fund are highly illiquid, that can also lead to wider spreads. Overall, the narrower the bid/ask spread, the lower the cost to trade.

What is Fidelity's best performing ETF? ›

The largest Fidelity ETF is the Fidelity Wise Origin Bitcoin Fund FBTC with $10.28B in assets. In the last trailing year, the best-performing Fidelity ETF was FDIG at 57.16%. The most recent ETF launched in the Fidelity space was the Fidelity Yield Enhanced Equity ETF FYEE on 04/11/24.

What are ETF spreads? ›

At any given time there are two prices for an ETF – the price someone is willing to purchase the ETF (known as the bid) and the price that someone is willing to sell the ETF (known as the ask). When trading ETFs, it is useful to measure the difference between these two prices, which is called the bid-ask spread.

Does daily volume matter in an ETF? ›

Trading volume: ETFs with higher trading volumes may have greater liquidity, though not necessarily. More active trading can lead to narrower bid-ask spreads, reducing the cost of trading.

Does Fidelity charge for ETF trades? ›

How do we stand apart from the rest? $0 commissions for online US stock, ETF, and option trades.

Is Vanguard or Fidelity better for ETFs? ›

Fidelity: Features. Both Fidelity and Vanguard have a wide variety of low-cost mutual funds and ETFs. If you're simply looking at the options offered by each firm, Fidelity has more options available.

What are the top 5 ETFs to buy? ›

7 Best ETFs to Buy Now
ETFExpense RatioAssets Under Management
ProShares Bitcoin Strategy ETF (ticker: BITO)0.95%$2.1 billion
Global X Copper Miners ETF (COPX)0.65%$2.3 billion
YieldMax NVDA Option Income Strategy ETF (NVDY)1.01%$433 million
iShares Semiconductor ETF (SOXX)0.35%$12.4 billion
3 more rows
May 7, 2024

What is a good average spread on an ETF? ›

Why Trading Spreads Matter For ETFs
Average SpreadAsset Weighted Average Spread
U.S. Fixed Income0.17%0.02%
International Fixed Income0.30%0.06%
Commodities1.64%0.05%
Currency1.16%0.10%
7 more rows
Jan 30, 2019

How to check the spread of ETFs? ›

This 'spread' can be seen when looking at the websites of online brokers and is also displayed by the ASX on the market data pages of its website. The narrower the spread the better, as this reduces the trading costs associated with buying and selling ETFs.

What are the disadvantages of ETFs? ›

For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.

What is a good volume for an ETF? ›

Volume And Market Impact

The higher the volume, the better. For example, if MSFT trades, on average, 10 million shares per day, it will be easier to trade than something that trades 100 shares per day.

Should I put all my money in one ETF? ›

How to build an optimally diversified portfolio? Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.

How to know if an ETF is good? ›

Before purchasing an ETF there are five factors to take into account 1) performance of the ETF 2) the underlying index of the ETF 3) the ETF's structure 4) when and how to trade the ETF and 5) the total cost of the ETF.

Is Fidelity good for ETF? ›

Fidelity's actively managed ETFs seek better investing outcomes* and offer trading flexibility along with potential tax efficiency. *While active ETFs offer the potential to outperform an index, these products may more significantly trail an index as compared with passive ETFs.

What are the cons of Fidelity? ›

Fidelity Cons
  • No cryptocurrency trading.
  • No futures trading or paper trading.
  • Transaction fees for non-Fidelity mutual funds.
  • Small per-contract fee for options.
Mar 22, 2024

Which ETFs are free on Fidelity? ›

Commission-Free ETFs on Fidelity
Symbol SymbolETF Name ETF Name# of Holdings # of Holdings
IJHiShares Core S&P Mid-Cap ETF403
IEMGiShares Core MSCI Emerging Markets ETF2874
IJRiShares Core S&P Small-Cap ETF605
ITOTiShares Core S&P Total U.S. Stock Market ETF2492
4 more rows

What is the highest performing ETF? ›

100 Highest 5 Year ETF Returns
SymbolName5-Year Return
PSIInvesco Semiconductors ETF23.83%
ITBiShares U.S. Home Construction ETF23.78%
FBGXUBS AG FI Enhanced Large Cap Growth ETN23.63%
XHBSPDR S&P Homebuilders ETF21.97%
93 more rows

Which Fidelity funds outperform the S&P 500? ›

On average, the Fidelity Contrafund has beaten the S&P 500 Index by 2.57% per year. Growth of $10,000 invested in Contrafund versus S&P 500 Index, September 17, 1990 to December 31, 2023. Total value December 31, 2023 for Contrafund was $637,227, compared to $296,182 for the S&P 500 Index.

Is Fidelity Contrafund better than the sp500? ›

VOO - Volatility Comparison. Fidelity Contrafund Fund (FCNTX) has a higher volatility of 4.78% compared to Vanguard S&P 500 ETF (VOO) at 3.37%. This indicates that FCNTX's price experiences larger fluctuations and is considered to be riskier than VOO based on this measure.

What is the Fidelity equivalent of schd? ›

FTEC is managed by Fidelity, while SCHD is managed by Schwab. Both FTEC and SCHD are considered high-volume assets. They're less likely to be affected by issues like slippage and failed orders on Composer than low-volume assets.

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