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Please help me to understand how ETF/Mutual Fund unit price determine?

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  • Feb 4th, 2021 5:49 pm
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Nov 21, 2006
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Please help me to understand how ETF/Mutual Fund unit price determine?

So I do understand a share of ETF/Mutual funds (like VEQT, ZGRO..etc) is like a big basket holding a tiny % of each top companies stock.



What I don't understand is how ETF share price go up and down.



Does the ETF unit price just automatically go up because one of the holding company price go up? (eg: If the ETF has a dollar worth of Apple stock, and Apple stock go up 10%, then now the cost of the ETF will be 10 cents more to buy. Vice Versa, if Apple goes down 10%, then the ETF unit will be 10 cents cheaper?)



Or

ETF/mutual funds is like individual stock base on supply and demand, for example the price go up because more people want to buy the ETF?



Thanks for helping me to understand.
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May 5, 2016
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fatkinglet wrote: So I do understand a share of ETF/Mutual funds (like VEQT, ZGRO..etc) is like a big basket holding a tiny % of each top companies stock.



What I don't understand is how ETF share price go up and down.



Does the ETF unit price just automatically go up because one of the holding company price go up? (eg: If the ETF has a dollar worth of Apple stock, and Apple stock go up 10%, then now the cost of the ETF will be 10 cents more to buy. Vice Versa, if Apple goes down 10%, then the ETF unit will be 10 cents cheaper?)



Or

ETF/mutual funds is like individual stock base on supply and demand, for example the price go up because more people want to buy the ETF?



Thanks for helping me to understand.
With ETF's it's the latter, it doesn't matter if the prices of the basket double, it doesn't change the price unless the market reflects it, like someone has to buy and sell at that price. Ofcourse, most ETF's have enough liquidity that you'll never really have this arbitrage opportunity.
Last edited by azorahai on Feb 4th, 2021 1:55 pm, edited 1 time in total.
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It goes up based on the underlying stocks. The fund has an underlying Net asset value (NAV) that is calculated based on the value of the underlying holdings. If you look up a fund or ETF you should be able to find the NAV.

The market price of the ETF should closely track this, and the higher total volume traded the closer it will be. The fund issuer will hold or release shares of the ETF to the market to try to keep the price in line with the NAV. There are also market makers and big players that will quickly buy or sell the fund if the market price drifts away from the NAV, so usually the difference is minimal on a popular fund with lots of volume.
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ETFs and mutual funds are different.

Mutual funds at the end of each day calculate the total assets owned by the fund and divide by the number of units of the fund that exist. That's the price at which units are bought and sold for that day.

ETFs are priced by the market: is someone is willing to sell it to you for $10, then you can buy it for $10. But ETF companies promise to exchange some large number of units of the ETF for the corresponding amount of the underlying assets. This is what keeps the market price close to the value of the underlying assets.

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