ETF Spreads and Prices in the Market
The market price and spreads on ETFs are mysterious to many market participants. They really should not be. They are a function of the costs to trade the underlying basket and the risk premium associated with a particular trade. Wider bid/ask spreads on an ETF are an indicator of a fund with low intraday customer activity, unrelated to asset levels in the fund. For example, if the fund has a domestic basket that is 4 cents wide in ETF terms, but the fund trades only 25,000 shares daily and the spread on the fund is 10 cents wide, then the spread is providing an indication of cost to access the fund when trading in small size. The ETF bid and ask are providing an assessment of the costs of creating/redeeming ...
Get Visual Guide to ETFs now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
