ETF Mythbuster: Trading volume does not indicate liquidity

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CNBC's Bob Pisani breaks down one of the most common misconceptions about ETFs: That trading volume indicates liquidity.

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@222 " dont use a market order" but then goes on to say how liquid theses things are like dude if it was liquid then a market order would be fine all

andrejohnson
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etf simply means you own worthless paper that someone told you represents something, that you can never actually get.

eirikarnesen
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As far as stocks go, I'd say that an Asset class that lets you bet on the prices, without actually owning those stocks dries up liquidity from the market. Talking more specifically about ETFs, they can also be used as market manipulating tools. I mean, once you compose an ETF with, let's say 15% A, 10% B and 75% C, all of those stocks rise proportionally. Now if B is a trash stock and has been intentionally put there, it can result in over-valuation, followed by a dump from those who own it separately.
Talking specifically about cryptocurrency market, you already know that those who've invested in ETFs aren't really going to use it out in the open (as money). They're in here only for trading. So, if a cryptocurrency is valued only as a result of people holding ETFs, there is a chance of sudden collapse. That's something to watch out for.

utkarshanand
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