Buying an ETF in practice

NAV, the fund's actual value

NAV (Net Asset Value) is the total value of the fund's holdings divided by the number of units: the ETF's “true” value. The market price can deviate from it temporarily, because the price is set by supply and demand.

Deviations usually stay small thanks to the creation and redemption mechanism: if the price drifts away, arbitrage makes it profitable to close the gap. The deviation can grow temporarily if the underlying market is closed or the market moves exceptionally sharply.

The spread is a real cost

There's always a gap between the buy and sell price: the spread. It doesn't appear in cost lists, but you pay it on every trade. For liquid, large ETFs the gap is very narrow; for more thinly traded ones it can be several times wider.

Order types

• Check that the underlying market is open: that's when pricing is most accurate.
• Avoid the first and last minutes of the trading day.
• Use a limit price if trading is thin or the amount is large.
• Remember the currency: an ETF priced in a foreign currency brings currency risk.

This content is for information purposes only and should not be construed as investment advice or a recommendation. Investing always involves the risk of losing capital. The value of financial instruments and investments can go up or down, and past performance is no guarantee of future returns. The calculators and comparisons are illustrative.