U.S. ETF TRADING FACTS: WHAT TO KNOW FROM 2023
- ETF trading decreased in 2023 to $38T on the back of record high interest rates where money market fund assets rose to an all-time high.
- Fixed Income ETFs saw their second largest trading year on record, with iShares ETFs accounting for 63% of activity.
- Trading costs for ETFs declined as market volatility edged lower.
- ETF options volume hit record levels for the industry ($130T).
It’s important for investors to understand how better ETF trading experiences can result in better investment outcomes, particularly as advisors look to combine ETFs in a whole portfolio solution. Whether it is for a tax-loss harvest trade, part of making a shift in strategic or tactical allocations for a portfolio, or simply adding a new ETF position, ETF market quality matters.
ETF trading volume ("turnover”) measures the dollar amount of ETF shares traded over a given period. As more investors use ETFs, and trading volume (or liquidity) in an ETF grows, market makers, who earn a spread on each trade, have a greater economic incentive to offer competitive quotes (set the best prices) to attract trading volume. Competition between market makers ultimately reduces trading costs for investors through lower bid-ask spreads, a component of an ETF’s trading cost.
Options on ETFs can also contribute to an improved ETF trading experience, and can give investors choice by providing them with another way to express their views. ETFs with a robust options ecosystem are typically supported by higher average daily volumes and lower bid-ask spreads as a result of hedging activity using the ETF. As the ETF options landscape expands, liquidity and cost benefits for investors are likely to continue to accrue to the ETFs with the largest options markets. There are more options listed on iShares ETFs than the ETFs of any other provider, contributing to potentially better liquidity and lower costs in these funds. 1
Below, we look at some key ETF trading stats for 2023, including how our U.S. iShares ETF franchise performed.