How is a mutual fund and ETF priced?
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Is a mutual fund and ETF priced the same way? regardsless of what it contains and if it pays didivends?
Is it basically the price of all the assets? or is the demand in the market(as with a stock) also relevant?
Does someone know a good way to think about this?
investing mutual-funds etf bond-funds
asked Feb 5 at 9:51
MaxedMaxed
1536
add a comment |
Is a mutual fund and ETF priced the same way? regardsless of what it contains and if it pays didivends?
Is it basically the price of all the assets? or is the demand in the market(as with a stock) also relevant?
Does someone know a good way to think about this?
investing mutual-funds etf bond-funds
asked Feb 5 at 9:51
MaxedMaxed
1536
Related question: The value/price of an ETF
– Ben Miller
Feb 5 at 10:59
add a comment |
Is a mutual fund and ETF priced the same way? regardsless of what it contains and if it pays didivends?
Is it basically the price of all the assets? or is the demand in the market(as with a stock) also relevant?
Does someone know a good way to think about this?
investing mutual-funds etf bond-funds
asked Feb 5 at 9:51
MaxedMaxed
1536
Is a mutual fund and ETF priced the same way? regardsless of what it contains and if it pays didivends?
Is it basically the price of all the assets? or is the demand in the market(as with a stock) also relevant?
Does someone know a good way to think about this?
investing mutual-funds etf bond-funds
investing mutual-funds etf bond-funds
asked Feb 5 at 9:51
MaxedMaxed
1536
asked Feb 5 at 9:51
MaxedMaxed
1536
asked Feb 5 at 9:51
MaxedMaxed
1536
asked Feb 5 at 9:51
MaxedMaxed
1536
asked Feb 5 at 9:51
MaxedMaxed
1536
1536
Related question: The value/price of an ETF
– Ben Miller
Feb 5 at 10:59
add a comment |
Related question: The value/price of an ETF
– Ben Miller
Feb 5 at 10:59
Related question: The value/price of an ETF
– Ben Miller
Feb 5 at 10:59
Related question: The value/price of an ETF
– Ben Miller
Feb 5 at 10:59
add a comment |
1 Answer
1
active
oldest
votes
The price of a traditional mutual fund is determined by something called the Net Asset Value (NAV). Each day after the market closes, this value is calculated by adding up everything that the fund owns and dividing by the number of shares. This NAV is then the price that you can buy into the fund for.
ETFs are mutual funds that trade like a stock on the stock market. ETFs also have a Net Asset Value, but the purchase price of the ETF fluctuates throughout the day as shares of the ETF are traded, subject to supply and demand of ETF shares. However, there are firms called Authorized Participants that are allowed to create or redeem ETF shares for shares in the underlying stocks. When the price of the ETF falls below the NAV, Authorized Participants can buy ETF shares and convert them to shares of the individual constituent stocks, propping the ETF share price up. Conversely, if the price of the ETF goes above the NAV, the Authorized Participants can convert shares of the constituent stocks into shares of ETF and sell them, bringing the ETF price down. In this way, the ETF price never gets too far from the NAV.
answered Feb 5 at 10:50
Ben MillerBen Miller
79.1k19218282
Nitpick: for traditional the NAV 'at' close is used to execute purchase and redemption orders entered before the close. You can't wait until you know the NAV and then place an order. OTOH for ETF if you place a market order you don't know what price you'll get, although usually it will be close to the previous ticker and to NAV, and if you place a limit order you don't know if it will execute at all.
– dave_thompson_085
Feb 6 at 15:26
@dave_thompson_085 Agreed. Thanks for the additional details.
– Ben Miller
Feb 6 at 15:34
add a comment |
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1 Answer
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1 Answer
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active
oldest
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oldest
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active
oldest
votes
The price of a traditional mutual fund is determined by something called the Net Asset Value (NAV). Each day after the market closes, this value is calculated by adding up everything that the fund owns and dividing by the number of shares. This NAV is then the price that you can buy into the fund for.
ETFs are mutual funds that trade like a stock on the stock market. ETFs also have a Net Asset Value, but the purchase price of the ETF fluctuates throughout the day as shares of the ETF are traded, subject to supply and demand of ETF shares. However, there are firms called Authorized Participants that are allowed to create or redeem ETF shares for shares in the underlying stocks. When the price of the ETF falls below the NAV, Authorized Participants can buy ETF shares and convert them to shares of the individual constituent stocks, propping the ETF share price up. Conversely, if the price of the ETF goes above the NAV, the Authorized Participants can convert shares of the constituent stocks into shares of ETF and sell them, bringing the ETF price down. In this way, the ETF price never gets too far from the NAV.
answered Feb 5 at 10:50
Ben MillerBen Miller
79.1k19218282
Nitpick: for traditional the NAV 'at' close is used to execute purchase and redemption orders entered before the close. You can't wait until you know the NAV and then place an order. OTOH for ETF if you place a market order you don't know what price you'll get, although usually it will be close to the previous ticker and to NAV, and if you place a limit order you don't know if it will execute at all.
– dave_thompson_085
Feb 6 at 15:26
@dave_thompson_085 Agreed. Thanks for the additional details.
– Ben Miller
Feb 6 at 15:34
add a comment |
The price of a traditional mutual fund is determined by something called the Net Asset Value (NAV). Each day after the market closes, this value is calculated by adding up everything that the fund owns and dividing by the number of shares. This NAV is then the price that you can buy into the fund for.
ETFs are mutual funds that trade like a stock on the stock market. ETFs also have a Net Asset Value, but the purchase price of the ETF fluctuates throughout the day as shares of the ETF are traded, subject to supply and demand of ETF shares. However, there are firms called Authorized Participants that are allowed to create or redeem ETF shares for shares in the underlying stocks. When the price of the ETF falls below the NAV, Authorized Participants can buy ETF shares and convert them to shares of the individual constituent stocks, propping the ETF share price up. Conversely, if the price of the ETF goes above the NAV, the Authorized Participants can convert shares of the constituent stocks into shares of ETF and sell them, bringing the ETF price down. In this way, the ETF price never gets too far from the NAV.
answered Feb 5 at 10:50
Ben MillerBen Miller
79.1k19218282
Nitpick: for traditional the NAV 'at' close is used to execute purchase and redemption orders entered before the close. You can't wait until you know the NAV and then place an order. OTOH for ETF if you place a market order you don't know what price you'll get, although usually it will be close to the previous ticker and to NAV, and if you place a limit order you don't know if it will execute at all.
– dave_thompson_085
Feb 6 at 15:26
@dave_thompson_085 Agreed. Thanks for the additional details.
– Ben Miller
Feb 6 at 15:34
add a comment |
The price of a traditional mutual fund is determined by something called the Net Asset Value (NAV). Each day after the market closes, this value is calculated by adding up everything that the fund owns and dividing by the number of shares. This NAV is then the price that you can buy into the fund for.
ETFs are mutual funds that trade like a stock on the stock market. ETFs also have a Net Asset Value, but the purchase price of the ETF fluctuates throughout the day as shares of the ETF are traded, subject to supply and demand of ETF shares. However, there are firms called Authorized Participants that are allowed to create or redeem ETF shares for shares in the underlying stocks. When the price of the ETF falls below the NAV, Authorized Participants can buy ETF shares and convert them to shares of the individual constituent stocks, propping the ETF share price up. Conversely, if the price of the ETF goes above the NAV, the Authorized Participants can convert shares of the constituent stocks into shares of ETF and sell them, bringing the ETF price down. In this way, the ETF price never gets too far from the NAV.
answered Feb 5 at 10:50
Ben MillerBen Miller
79.1k19218282
The price of a traditional mutual fund is determined by something called the Net Asset Value (NAV). Each day after the market closes, this value is calculated by adding up everything that the fund owns and dividing by the number of shares. This NAV is then the price that you can buy into the fund for.
ETFs are mutual funds that trade like a stock on the stock market. ETFs also have a Net Asset Value, but the purchase price of the ETF fluctuates throughout the day as shares of the ETF are traded, subject to supply and demand of ETF shares. However, there are firms called Authorized Participants that are allowed to create or redeem ETF shares for shares in the underlying stocks. When the price of the ETF falls below the NAV, Authorized Participants can buy ETF shares and convert them to shares of the individual constituent stocks, propping the ETF share price up. Conversely, if the price of the ETF goes above the NAV, the Authorized Participants can convert shares of the constituent stocks into shares of ETF and sell them, bringing the ETF price down. In this way, the ETF price never gets too far from the NAV.
answered Feb 5 at 10:50
Ben MillerBen Miller
79.1k19218282
answered Feb 5 at 10:50
Ben MillerBen Miller
79.1k19218282
answered Feb 5 at 10:50
Ben MillerBen Miller
79.1k19218282
answered Feb 5 at 10:50
Ben MillerBen Miller
79.1k19218282
79.1k19218282
Nitpick: for traditional the NAV 'at' close is used to execute purchase and redemption orders entered before the close. You can't wait until you know the NAV and then place an order. OTOH for ETF if you place a market order you don't know what price you'll get, although usually it will be close to the previous ticker and to NAV, and if you place a limit order you don't know if it will execute at all.
– dave_thompson_085
Feb 6 at 15:26
@dave_thompson_085 Agreed. Thanks for the additional details.
– Ben Miller
Feb 6 at 15:34
add a comment |
Nitpick: for traditional the NAV 'at' close is used to execute purchase and redemption orders entered before the close. You can't wait until you know the NAV and then place an order. OTOH for ETF if you place a market order you don't know what price you'll get, although usually it will be close to the previous ticker and to NAV, and if you place a limit order you don't know if it will execute at all.
– dave_thompson_085
Feb 6 at 15:26
@dave_thompson_085 Agreed. Thanks for the additional details.
– Ben Miller
Feb 6 at 15:34
Nitpick: for traditional the NAV 'at' close is used to execute purchase and redemption orders entered before the close. You can't wait until you know the NAV and then place an order. OTOH for ETF if you place a market order you don't know what price you'll get, although usually it will be close to the previous ticker and to NAV, and if you place a limit order you don't know if it will execute at all.
– dave_thompson_085
Feb 6 at 15:26
Nitpick: for traditional the NAV 'at' close is used to execute purchase and redemption orders entered before the close. You can't wait until you know the NAV and then place an order. OTOH for ETF if you place a market order you don't know what price you'll get, although usually it will be close to the previous ticker and to NAV, and if you place a limit order you don't know if it will execute at all.
– dave_thompson_085
Feb 6 at 15:26
@dave_thompson_085 Agreed. Thanks for the additional details.
– Ben Miller
Feb 6 at 15:34
@dave_thompson_085 Agreed. Thanks for the additional details.
– Ben Miller
Feb 6 at 15:34
add a comment |
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Related question: The value/price of an ETF
– Ben Miller
Feb 5 at 10:59