ETF liquidity, electronic trading and rogue algorithms all came under renewed scrutiny in the wake of the Knight Capital debacle. But the pundits got it wrong: The ETF market is liquid and sound.

Last Wednesday, market maker Knight Capital (ticker: KCG) experienced a major computer glitch in its trading software, sending numerous erroneous orders of NYSE-listed stocks into the market and causing a $440 million loss for the firm. But th...

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News of market marker Knight Capital’s trading blunder has dominated the headlines the last couple days, causing many to speculate whether the firm will survive. One lesson coming out of the debacle: Avoid small, illiquid ETFs—at least for now...