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Not really the ETFs are generally backed by the actual securities they represent. They may deviate from market value a bit intraday, but those deviations are p
by bobbington 9y ago
Not really the ETFs are generally backed by the actual securities they represent. They may deviate from market value a bit intraday, but those deviations are picked up by special arbitrageurs and quickly eliminated.
http://www.understandetfs.org/creation_redemption.html http://www.understandetfs.org/creation_redemption.html
- StavrosK 9y agoAh I see, thanks, I wasn't aware of that mechanism. So you can basically exchange the ETF for the actual held securities at any point, which keeps the price near that of the securities, pretty clever.
- bobbington 9y agoI'm not sure that anyone can, but just that certain large entities can, and it is apparently profitable for them to do so, so they have incentive to keep it in line. If it's selling for less than it's worth, they will "cash out" at the end of the day and pick up the underlying shares at a discount. If it's selling for more than it's worth, they will buy more underlying securities and create new shares that sell for more than they are worth. I'm no expert though so it would be good to look into it more.