13 Nov 2026
What Are ETF Bid-Ask Spreads and Premiums or Discounts?
An ETF’s bid-ask spread is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept on the exchange. A premium or discount is the difference between the ETF’s market price and the value of its underlying holdings, its net asset value. Both affect what an investor actually pays or receives when trading, and both are disclosed on most ETF websites.
What is a bid-ask spread?
When an ETF trades, there are two prices at any moment. The bid is the highest price a buyer is currently offering. The ask, or offer, is the lowest price a seller is currently willing to accept. The difference is the bid-ask spread.
An investor who buys at the ask and later sells at the bid gives up the spread, in addition to any other trading costs. For example, if an ETF’s bid is $49.98 and its ask is $50.02, the spread is 4 cents, or about 0.08% of the price. This example is illustrative only.
Spreads are often expressed as a percentage of the price so they can be compared across funds with different share prices.
What determines the size of a spread?
Liquidity of the underlying holdings. This is usually the most important factor. An ETF holding large, actively traded U.S. stocks typically has a narrow spread because market makers can easily buy and sell the underlying securities. An ETF holding less liquid assets, such as small-company stocks, emerging market securities, some bonds or certain options, tends to have wider spreads.
Trading hours of the underlying market. When an ETF’s holdings trade in markets that are closed during U.S. trading hours, such as some Asian or European markets, market makers have less certainty about current values, which can widen spreads.
ETF trading volume. Higher trading volume in the ETF itself can narrow spreads, though an ETF with low trading volume can still have a narrow spread if its underlying holdings are liquid.
Market conditions. Spreads tend to widen during periods of market stress and volatility, and around the market open and close.
Why is ETF liquidity not the same as trading volume?
A common misunderstanding is that an ETF with low daily trading volume is hard to trade. Because authorized participants can create or redeem ETF shares in exchange for the underlying securities, an ETF’s liquidity depends largely on the liquidity of what it holds. Market makers can quote prices based on the value of the underlying portfolio, even if the ETF itself trades infrequently. Our article on what an ETF is and how it works explains creation and redemption.
Trading volume still matters, particularly for very large orders, but the underlying liquidity is a better guide to how tightly an ETF can trade.
What are premiums and discounts?
Net asset value, or NAV, is the value of an ETF’s holdings per share, typically calculated once a day at the market close. The market price is what the ETF trades for on the exchange.
When the market price is higher than NAV, the ETF trades at a premium. When it is lower, the ETF trades at a discount. Premiums and discounts are usually small for ETFs holding liquid securities, because authorized participants and market makers can profit by closing any meaningful gap through creation and redemption.
Why can premiums and discounts appear?
Timing differences. When an ETF holds securities that trade in markets closed during U.S. hours, its NAV is based on earlier closing prices, while its market price reflects new information. An apparent premium or discount may simply reflect that the market price is more current.
Less liquid holdings. Bond ETFs and other funds holding less frequently traded assets may show premiums or discounts when the prices used to calculate NAV lag current market conditions.
Market stress. During volatile periods, spreads widen and arbitrage may take longer, allowing larger premiums or discounts to persist briefly.
Creation or redemption constraints. If creations or redemptions are restricted for any reason, the price can drift further from NAV.
Where can investors find this information?
Under the SEC’s ETF rule, Rule 6c-11, most ETFs must disclose on their websites the median bid-ask spread over the most recent 30-day period, along with information about the fund’s premiums and discounts, including how often and by how much its market price has differed from NAV.1 If an ETF’s premium or discount exceeds 2% for more than seven consecutive trading days, the fund must post a discussion of factors that are reasonably believed to have contributed to it.1
Brokerage platforms also display real-time bid and ask quotes, and many show an indicative value for the ETF’s portfolio during the trading day.
How can investors manage trading costs?
Use limit orders. A limit order sets the maximum price an investor is willing to pay when buying or the minimum price they accept when selling. That helps avoid paying more than expected if the market moves or the spread is wide. Our article on how to buy an ETF explains order types.
Avoid the first and last minutes of trading. Spreads are often wider just after the open, while market makers establish prices, and can widen near the close.
Consider the underlying market’s hours. For ETFs holding international securities, trading while the underlying markets are open may result in tighter spreads.
Check the spread before trading. Compare the current quoted spread with the fund’s published median spread. A spread much wider than usual may signal unusual conditions.
Be thoughtful with large orders. For very large trades, brokers can work with liquidity providers to execute closer to the value of the underlying holdings.
How do spreads compare with expense ratios?
The expense ratio is an ongoing annual cost. The bid-ask spread is a cost paid when trading. For long-term investors who trade infrequently, the expense ratio usually has a larger effect over time. For investors who trade frequently, spreads can become significant. Both should be considered when comparing funds. More introductory topics are covered in our ETF basics guide. Investments involve risk, including possible loss of principal.
Frequently asked questions
What is a good bid-ask spread for an ETF?
It depends on what the ETF holds. Funds holding large, liquid U.S. stocks often have spreads of a few hundredths of a percent, while funds holding less liquid assets can have wider spreads. Comparing a fund’s current spread with its published 30-day median spread shows whether trading conditions are typical.
Why would an ETF trade at a discount to NAV?
A discount can occur when selling pressure outpaces buying, when the fund’s holdings are less liquid, during market stress, or when NAV reflects older prices for securities whose markets are closed. Creation and redemption by authorized participants generally works to narrow persistent gaps.
Is a low-volume ETF hard to sell?
Not necessarily. An ETF’s liquidity depends largely on the liquidity of its underlying holdings, because market makers can create or redeem shares. A low-volume ETF holding liquid securities may still trade with a narrow spread. Using limit orders helps manage execution in any case.
Where can I find an ETF’s premium or discount history?
Most ETFs publish premium and discount data and their median bid-ask spread on their websites, as required under the SEC’s ETF rule. Many brokerage and research platforms also display this information along with real-time quotes and an intraday indicative value.
Should I use a market order or a limit order for ETFs?
Many investors use limit orders, which set the maximum price to pay or minimum price to accept. Market orders execute at the prevailing market price, which can be unfavorable if spreads are wide or prices move quickly. Limit orders give more control over the execution price.
- U.S. Securities and Exchange Commission, Rule 6c-11 under the Investment Company Act of 1940, website disclosure requirements for median bid-ask spread and premiums and discounts.
Cite this page: Adam Patti, "What Are ETF Bid-Ask Spreads and Premiums or Discounts?," VistaShares, updated November 13, 2026, https://www.vistashares.com/etf-bid-ask-spreads-premiums-discounts/. Plain-text version.
This material is provided for educational purposes only. It is not investment, legal or tax advice, and it is not a recommendation or an offer to buy or sell any security. Information is drawn from sources believed to be reliable as of the date of publication, is not guaranteed as to accuracy or completeness, and may change without notice. Figures attributed to third parties are their estimates. Projections and forecasts are not guarantees of future results. Investors should consult their own financial, legal and tax professionals before making investment decisions. Investments involve risk, including possible loss of principal. ETF shares are bought and sold at market price, which may differ from net asset value, and brokerage commissions and other trading costs may apply.