Determining the fair price of an ETF

The NAV, net asset value of all the companies the ETF holds, is calculated at the end of every day.  Therefore, an ETF can be sold at a discount, lower than current NAV, or premium, higher than current NAV, of the underlying securities.  Unfortunately, the NAV is not calculated throughout the day.  Therefore, the discount/premium compared to the underlying securities is inaccurate.

Fortunately, there is an AP (Authorized participant). His/her job is to make sure that the ETF price accurately reflects the NAV of the underlying securities throughout the day.  Therefore, I will not be concerned about overpaying for an ETF.  Nevertheless, I always use the limit order when buying or selling ETFs.

What is Net Asset Value

Authorized Participant

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