Capital Markets

The Capital Markets team is positioned centrally between ETF investors and the liquidity providers in Xtrackers products.
Our  aim is to maximize fund liquidity and minimize client transaction costs in Xtrackers ETFs.

Capital Markets Capabilities

ETF Trading – How are ETFs typically traded?

There are four main ways in which an ETF can be traded:

NAV Trading

What is NAV trading?

NAV trading is used to target the official NAV of an ETF and is most used by investors who are benchmarked to ETF NAV.

It is appropriate for investors who want a cost effective method of execution without time sensitivity. Brokers provide investors with prices for execution, usually shown in reference to a basis point cost versus the official NAV publication

OTC Risk Trading

What is OTC risk trading?

Some of the largest facilitation trades in the ETF market are conducted with the use of a broker via OTC risk trading. This involves investors asking brokers for a live price of the ETF in which they wish to trade.

OTC risk trading, provides investors with price immediacy.  Once the investor has executed their trade, the risk is then fully transferred to the broker.

Exchange Trading

What is exchange trading?

Investors can also choose to trade ETFs on exchanges with the use of different order types or via an algorithm. During the course of trading day, designated market makers provide exchange bid and offer prices to provide liquidity to ETFs. Investors are able to enter and exit trades at any point during the trading day.

Investors have various options in which they can achieve their execution.  Please check with your execution broker on their capabilities. 

Agency OTC Trading

What is Agency OTC trading?

An agency order involves an investor giving an order to a broker with the agreement that the broker will execute the order and pass the execution fills back to the investor. The broker acts as an agent, simply executing the order for the client on a best efforts basis.

In order to provide this service, the broker may charge the client a commission for the execution services. There are multiple ways in which an agency order can be executed, all of which are appropriate accordingly to the underlying market conditions.


What is

What is the difference between primary and secondary market liquidity?


The primary market is the mechanism where Authorized Participants create new ETF shares or redeem existing ETF shares in predefined unit sizes directly with the ETF issuer. The secondary market relates to all investor activity that is traded on exchange or over-the-counter. The secondary market affords investors the ability to buy or sell as small as one share at any time during the trading session.



How do you measure primary market liquidity?

Primary market liquidity is a function of the average daily volume of the ETF’s underlying securities. Common practice is to measure primary market liquidity with a metric called implied liquidity.

What is implied liquidity?

Implied liquidity of an ETF represents the underlying liquidity that can be traded without having a material impact on the underlying securities’ price.
A common convention is to calculate implied liquidity with the 25% rule i.e. the trade size in the ETF that would become more than 25% of the average daily volume in the least liquid underlying security. This is not a ceiling on the amount of ETF shares that could be traded in one transaction but above this point it is advised to spread the trade over a longer execution timeframe.

How do you measure secondary market liquidity?

Secondary market liquidity can be measured by looking at average daily volume of the ETF over a period such as 30 days.
Other useful metrics when analyzing secondary market liquidity are ETF spreads and market depth. Similarly to primary market liquidity analysis, the implied liquidity of the underlying securities of the ETF also determine the liquidity of the ETF when traded in the secondary market.

Who are the most active market makers in specific funds?

The most active market maker(s) in a fund will vary from product to product. We recommend to contact the Capital Markets Desk to connect you with the most active market maker(s) for your specific order.

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