Scarcity of buyers and sellers results in large spreads between bid and ask. Be careful. When you reverse your trade, i.e. sell the ETF or option that you own, the illiquidity in that instrument may require you to sell at less than an optimal prbid/ask spread etfice.
Suppose you were a fund company that sponsored an ETF and there was too little interest to "keep the lights on." This just happened to some Claymore ETFs:
As the article explains: "Demand was so low that they failed tobid/ask spread etf attract much money beyond the seed. BIR Leaders Mid-Cap, the thinnest one, had a paltry $1.1 million in assets. By contrast, Claymore BNY BRIC EEB, the firm's most popular offering, sucked in nearly $1 billion in a year and a half."
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