3

When you buy a stock from the market, you exchange it with someone. When you buy an ETF, do you give the fund manager money so that he can buy more of the assets that the ETF is supposed to mirror, or do you just exchange it with someone?

10

When you buy or sell an ETF, like trading a stock, you receive/provide shares along with the appropriate exchange of cash with the counter party. In all likelihood, the transaction involves existing shares.

However, the counter party could also be an Authorized Participant who has “creation units,” which are large blocks of newly created ETF shares that are now available for sale on the market.

6

No. As a regular market participant, you buy it from someone else who holds it and wants to sell it, just like for regular common stock.

If the price you as a buyer-seller pair are willing to buy & sell for gets out of whack with the value of the underlying assets, an "Authorized Participant" can trade a basket of shares representing the ETF's holdings with the ETF for a proportional number of shares of the ETF (or the other way around), thus arbitraging the price discrepancy and maintaining a narrow spread. The minimum number of shares for redemption or creation is usually something like 10,000 or 100,000, but the actual number for any particular ETF is always found in its prospectus.

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.