Deutsche Borse has come out with a new crucial tool indicator for ETF investors, known as iXLM (intraday Xetra liquidity measure), which shows the changes in ETF trading costs during each day’s trading session.
This new indicator tool will enable ETF investors to pinpoint timeframe when the costs of trading an ETF will be at their lowest so that they can use this information to strategize their future trading decisions. The indicator will work on all the ETFs that are traded on the Xetra platform.
An ETF trading cost generally consists of two forms, explicit and implicit costs. The explicit cost arises from the processing of trading orders by stock exchanges and banks, which the investors are directly charged in form commissions and fees. The implicit cost arises from the ETF’s liquidity at the time of trading.
The head of ETF products at Deutsche Börse, Stephan Kraus explained:
“Implicit trading costs amount to a significant part of the total trading costs. By taking the iXLM into account, investors can save on average up to 30 per cent of these costs in ETF trading, depending on the time of day”.
“Further adding: The implicit costs depend on the situation in the order book and are not reported directly. Investors can assess these costs only to a limited extent.”
In past, Xetra users have to use Xetra Liquidity Measure (XLM) to calculate liquidity of all ETFs and shares traded on its platform. However, the costs were calculated on the basis of the monthly mean figure, applied to each trading session.
Kraus concluded his statement by mentioning:
“But the XLM varies considerably over the day. The new iXLM reflects these fluctuations for ETFs in 30-minute intervals,”