Important Factors That Affect an ETF price
An ETF's price is anchored to its basket. What determines how tightly, and how the two can separate, is where the practical knowledge lies.
The dominant factor
The value of the underlying holdings drives essentially all of an ETF's price movement. Everything below explains deviations around that anchor, and those deviations are small for well-constructed products.
Liquidity of the underlying, not of the ETF
The most commonly misunderstood point, and the most useful to get right.
A new ETF with almost no trading volume is not illiquid if its underlying is liquid. Because creation and redemption let market makers manufacture shares on demand, they will quote size in an ETF that has never traded, as long as they can trade the basket.
The reverse also holds: an ETF with respectable volume whose underlying is illiquid can be expensive to trade in size, because the arbitrage that would supply liquidity is itself constrained.
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