“During last Thursday’s ‘flash crash,’ the market saw its largest intraday point drop in history, slumping close to 1,000 points in a matter of minutes before recovering just as fast, ending the day down 350. An unsettlingly large number of the financial products most affected by the flash crash were exchange traded funds. Among the ETFs which suffered the biggest hit during the downfall were those which boast the lowest average traded volumes among the industry,” Don Dion Reports From The Street.

Dion goes on to say, “For many of these illiquid products, algorithms managed by market makers end up being the only players in the field. In the event that an algorithm goes offline for any reason, the market for the illiquid funds it manages will effectively disappear. This clears the way for prices for these ETFs to swing wildly out of control as they did during those hectic minutes last Thursday. In order to avoid experiencing a repeat performance of last week’s dip, it is essential that ETF investors seek out products in which there are more players than just the market maker. One of the simplest ways to do this is to pick out funds with the highest average trading volume. High average volume indicates that there is ample interest from more players than a single market maker.”

“I consider exchange traded funds with average trading volumes over 100,000 to be the most stable. Although there are now over 1,000 ETF products currently available, constructing a portfolio of sufficiently liquid funds is not difficult. Popular ETFs such as PowerShares QQQ (NASDAQ:QQQQ), iShares Dow Jones Select Dividend Index Fund (NYSE:DVY), SPDR KBW Bank ETF (NYSE:KBE) and Market Vectors Gold Miners ETF (NYSE:GDX) easily meet this requirement,” Dion Reports.

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Here are some details on the ETFs mentioned in the article that provide investors with liquidity in the market.

PowerShares QQQ (NADAQ:QQQQ)

PowerShares QQQ™, formerly known as “QQQ” or the “NASDAQ- 100 Index Tracking Stock®”, is an exchange-traded fund based on the Nasdaq-100 Index®. The Fund will, under most circumstances, consists of all of stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. The portfolio is rebalanced quarterly and reconstituted annually.

Fund Holdings subject to change   Apple Inc.   18.25%   Microsoft Corp.   4.93%   QUALCOMM Inc.   4.30%   Google Inc. (Cl A)   4.23%   Cisco Systems Inc.   2.92%   As of 5/13/2010		Oracle Corp.   2.83%   Intel Corp.   2.43%   Teva Pharmaceutical Industries Ltd. (ADS)   2.38%   Amazon.com Inc.   2.17%   Research In Motion Ltd.   2.06%

Dow Jones Select Dividend Index Fund (NYSE:DVY)

The iShares Dow Jones Select Dividend Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Select Dividend Index.

SPDR KBW Bank (NYSE:KBE)

The SPDR® KBW Bank ETF, before expenses, seeks to closely match the returns and characteristics of the KBW Bank Index (ticker: BKX). Our approach is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.

Fund Top Holdings

As of05/13/2010
Name	Weight	Shares Held
Bank Of America Corporation (BAC)	8.88%	5,180,652
Citigroup Inc (C)	7.47%	17,960,750
Wells Fargo & Co New (WFC)	7.40%	2,200,204
Us Bancorp Del	5.97%	2,228,175
Jpmorgan Chase & Co (JPM)	5.39%	1,299,476
Regions Financial Corp New	5.05%	5,685,146
Suntrust Bks Inc	4.83%	1,520,253
M & T Bk Corp	4.68%	510,141
Fifth Third Bancorp	4.58%	3,044,507
Huntington Bancshares Inc	4.56%	6,630,583

Market Vectors Gold Miners ETF (NYSE:GDX)

The investment seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry. The fund is nondiversified.

KBE, NYSE:DVY, NYSE:GDX, QQQQ