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At Vanguard, ETFs are share classes, and to simpify matters my question concerns only Vanguard ETFs. Investopedia has the following article:
investopedia.com/ask/answer ... -price.asp
According to this article as I read it, one or more authorized participants can arbitrage between the ETF price and the price of its holdings in such a way as to bring the ETF price close to the cumulative market value of the holdings. I only vaguely understand this, but here is my question.
On a sharply down market day, is there a zero chance of the market price getting well below the value of holdings intraday? All this seems like a complex arrangement that could imaginably break at some point in a severe down day. How can it be assured that the one or more authorized participants are themselves stable and active and successful 100% of the time? Is the secret sauce issung and redeeming shares? I can't quite close the loop on understanding this. How would a potential ETF buyer even know if or when the holdings value is well above the ETF market price? I am wary of investing in something I understand so little.
investopedia.com/ask/answer ... -price.asp
According to this article as I read it, one or more authorized participants can arbitrage between the ETF price and the price of its holdings in such a way as to bring the ETF price close to the cumulative market value of the holdings. I only vaguely understand this, but here is my question.
On a sharply down market day, is there a zero chance of the market price getting well below the value of holdings intraday? All this seems like a complex arrangement that could imaginably break at some point in a severe down day. How can it be assured that the one or more authorized participants are themselves stable and active and successful 100% of the time? Is the secret sauce issung and redeeming shares? I can't quite close the loop on understanding this. How would a potential ETF buyer even know if or when the holdings value is well above the ETF market price? I am wary of investing in something I understand so little.