Exchange-traded funds (ETFs) are known for their simplicity – you can buy or sell them throughout the day, just like a stock. Yet behind that apparent ease lies one of the most efficient mechanisms in modern investing. Understanding how ETFs trade helps investors see why this vehicle, especially when combined with active management, has become such a powerful way to invest.
How ETF liquidity really works
ETF liquidity has two dimensions: secondary and primary market liquidity.
In the secondary market, investors trade ETF shares with one another on exchanges such as the London Stock Exchange or Euronext. The liquidity you see on-screen, in other words, the bid and ask prices, reflects how many units are being traded between buyers and sellers.
Behind that sits the primary market, where specialist institutions known as authorized participants (APs) can create or redeem ETF shares directly with the issuer in exchange for the fund’s underlying securities. This mechanism ensures that liquidity expands or contracts with demand, helping to keep ETF prices closely aligned with the fund’s net asset value (NAV).
As a result, even ETFs that don’t trade in high daily volumes can still be highly liquid if their underlying securities are liquid. This distinction is especially important for professional investors comparing ETFs with mutual funds.
Why this matters for active ETFs
Active ETFs use the same infrastructure but add a crucial layer: professional portfolio management. Investors gain access to an instrument that’s easy to trade and transparent, while benefiting from active oversight and disciplined investment decisions.
At Robeco, our active ETFs bring together the best of both worlds – the flexibility of the ETF wrapper and the research-driven precision of active management. Managed under Europe’s UCITS standards, we combine robust models, sound economic rationale, and human insight to pursue better long-term, risk-adjusted returns. The ETF structure makes these strategies accessible, tradable, and cost-efficient; all within a trusted European regulatory environment.
How liquidity shapes ETF pricing
ETFs trade continuously throughout the day, with prices updating in real time. Market makers quote both buy and sell prices to ensure smooth trading, and the difference between the two – the bid-ask spread – represents the cost of instant liquidity.
In more liquid ETFs, spreads tend to remain tight. In less active ones, APs can step in to create or redeem shares, anchoring the market price to the underlying NAV. This dual-layer mechanism helps ETFs remain resilient even during periods of market stress – as seen across European exchanges in recent years.
Transparency and price discovery
Because ETFs publish holdings frequently and trade continuously, they contribute meaningfully to price discovery – reflecting the consensus view of thousands of market participants.
For active ETFs, this transparency highlights both the efficiency of the structure and the accountability of active management. Robeco’s active ETFs, for instance, publish their holdings regularly and are designed to trade efficiently, so investors know what they own and can act with confidence.
Access, efficiency, and evolution
The European ETF market is evolving rapidly. What began as a vehicle for passive exposure has matured into a platform supporting a wide range of active investment styles.
Active ETFs offer the same access, liquidity, and cost efficiency as traditional ETFs, while adding the flexibility and insight of active management. This combination makes them increasingly popular among UK wealth managers, multi-asset allocators, and other investors seeking to blend agility with accountability.
As trading infrastructure deepens, with tighter spreads, greater transparency, and more market makers operating across Europe, active ETFs are becoming an indispensable part of the modern investment toolkit.
Conclusion
ETFs may look straightforward, but their trading mechanism is a finely tuned system designed to keep markets liquid and efficient. Combined with active management, that system becomes a platform for disciplined innovation – helping investors act decisively, diversify effectively, and stay aligned with their long-term goals.
Disclaimer
Important information – capital at risk
This information refers only to general information about Robeco Holding B.V. and/or its related, affiliated and subsidiary companies (“Robeco”), Robeco’s approach, strategies and capabilities. This is a marketing communication intended solely for professional investors, defined as investors qualifying as professional clients, who have requested to be treated as professional clients or who are authorized to receive such information under any applicable laws. Unless otherwise stated, the data and information reported is sourced from Robeco, is, to the best knowledge of Robeco, accurate at the time of publication and comes without any warranties of any kind. Any opinion expressed is solely Robeco’s opinion, it is not a factual statement, and is subject to change, and in no way constitutes investment advice. This document is intended only to provide an overview of Robeco’s approach and strategies. It is not a substitute for a prospectus or any other legal document concerning any specific financial instrument. The data, information, and opinions contained herein do not constitute and, under no circumstances, may be construed as an offer or an invitation or a recommendation to make investments or divestments or a solicitation to buy, sell, or subscribe for financial instruments or as financial, legal, tax, or investment research advice or as an invitation or to make any other use of it. All rights relating to the information in this document are and will remain the property of Robeco. This material may not be copied or used with the public. No part of this document may be reproduced, or published in any form or by any means without Robeco’s prior written permission. This information is provided by Robeco Institutional Asset Management UK Limited, 30 Fenchurch Street, Part Level 8, London EC3M 3BD, registered in England no. 15362605. Robeco Institutional Asset Management UK Limited is authorised and regulated by the Financial Conduct Authority (FCA – Reference No: 1007814).
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