Analyst, ETF Insights
In investing, liquidity is often taken for granted until it declines. During periods of market stress, the ability to transact quickly and at a fair price becomes not just a convenience but a necessity. ETFs have consistently demonstrated a remarkable ability to support trading activity when certain asset classes struggle to find liquidity, particularly when markets are facing stress. The most recent example came during the outbreak of the Iran war, when ETF exchange volume hit its highest daily level on record, 43% of total U.S. exchange activity1. Given the continued adoption and evolution of the ETF ecosystem, we expect new highs to become a regular occurrence when volatility spikes.
The numbers tell the story
Tracking ETF exchange volume as a percentage of total U.S. market trading activity from 2008 through early 2026 uncovers a consistent pattern. During a normal day, ETFs trade around their long-term average of 28% of total exchange volume; however, when volatility rises, that volume share increases well above the baseline average. The CBOE VIX Index and ETF share of exchange volume move in similar patterns across most major stress events in the below chart.
Guide to ETFs (slide 10): ETF exchange volume during periods of volatility
During the financial crisis, ETF volume climbed sharply above 40%. The same pattern repeated during the U.S. debt downgrade, the taper tantrum, the energy crisis and the Covid pandemic selloff. As the Iran conflict escalated earlier this year, ETF exchange volume averaged 37% of total U.S. exchange activity throughout the month of March2, underscoring just how central ETFs have become to how investors manage risk in real time.
The advantage is structural, not accidental
What makes this pattern significant is not just that volumes rise with volatility, it is that ETFs function as a pressure valve for the broader market. When liquidity in individual securities becomes strained, spreads widen and market makers pull back, yet investors can still transact efficiently through ETFs. In fixed income especially, where individual bonds trade less frequently and can become nearly untradeable during a crisis, ETFs have repeatedly offered a level of liquidity the underlying market could not match. Even the Federal Reserve recognized this during the COVID crisis, making purchases of fixed income ETFs as a market stabilization tool.
ETF shares trade on exchange continuously, providing price discovery independent of the underlying securities. The creation and redemption mechanism allows authorized participants (APs) to arbitrage gaps between market price and net asset value (NAV), keeping spreads tight even under duress. The ETF absorbs and redistributes stress rather than amplifying it.
ETF adoption has grown (~$16 Tn in AUM3) and the long-term trend continues, reflecting the structure’s expanding role in how capital moves. ETFs have earned their place not just as an efficient vehicle in calm markets, but as an indispensable source of liquidity when markets need it most.