I am looking at this ETF SIH, it sounds good in theory but I noticed it has hardly any volume. I heard somewhere that ETFs hold their price based on supply and demand just like a stock, in that case shouldn't I be worried that there is not much volume?
Computer Games for Kids answered:
Stick with big name sponsors of ETFs. I'll clarify the point about supply and demand and market price of an ETF.
All exchange traded funds have what are called "authorized participants." They're authorized to create or redeem 50,000 shares of the etf directly with the trustee. Thus, they are in a position to arbitrage any difference between the Net Asset Value (NAV) of an ETF and its market price.
Say market demand does go down for an ETF, and so drops below the NAV -- then the authorized participant can get more shares of the ETF, because it's now a bargain. This raises demand in the marketplace, so price rises to meet the NAV.
This is a big difference between ETFs and ordinary closed end mutual funds. Closed end mutual funds can -- and usually do -- trade at either a discount or premium to their NAV.
So the direct answer is that yes, it is "safe" to buy this ETF. Its market price will not drop below the NAV.
Of course, this does not protect you from market price drops!
Ted answered:
Your big risk is giving up the spread when you buy and sell. This cuts into your profit.
I have never heard of the MarketGrader 100 Index. I have never heard of SPA ETF Inc. Judging by the volume, neither has anybody else.
If you want a general large cap fund, which is what this seems to be, why don't you go for one with a major sponsor like Vanguard or State Street? I don't see what's so special about this. Please email me if I'm missing something.
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