Supply and Demand of ETFs in the market Research Paper

Supply and Demand of ETFs in the market - Research Paper Example The market value of an individual ETF through out a single trading day depends on demand and supply for each and every ETF. They follow Index all through, but they act like Equity. ETFs can also be used to refer to those investment companies which are classified as Unit Investment Trusts (UITs) or open ended companies. Exchange-Traded Fund usually experience changes all through the day as they get to be bought and to be purchased. Exchange-Traded Fund does not have net asset value like mutual funds since it trades like a stock. The leading country in the development of ETF is Canada. It creation has roots in Toronto Stock Exchange with Toronto 35 Index Participation Units. The creation of ETFs starts when a professional investor like an investment bank places a whole stock portfolio with a fund manager where they exchange the basket of securities underlying the Index with the provider of ETF for new ETF shares. That is, the professional investor then receives a given quantity of ETF shares in return for the deposit. These shares can then be traded in the exchange market where they can be sold or bought by professional investors or retail from all parts of Europe. Creation units refer to large blocks of ETF shares which usually range from 100,000 to 200,000 shares per unit. The designated or professional investor or brokers usually break these creation units into individual ETF shares which then trade in the stock exchange. The creation and the issuance of ETFs consist of two markets which include the prima ry market which creates the ETFs and the secondary market which buys or sells the ETF units. The creation of ETFs therefore takes place in the primary market between the authorized participants and the fund. â€Å"In kind† creation on the other hand takes place in authorized participants and more so large financial institution. The ETF shares are created by the deposit of portfolio of stocks into the applicable fund, and this is done in