How are prices determined for ETFs?
The price of the Exchange Traded Funds that track indexes is determined from the current price of their benchmark indexes. As an example QQQQ is designed to be 1/40 of the NASDAQ 100 index, SPY is design to match 1/100 of the S&P 500 index, MDY is designed to be 1/5 of the S&P 400 index, etc. Furthermore when NASDAQ 100 index is traded at $1,600 QQQQ stock is traded at $40 per share and when NASDAQ 100 moves to $1,800 QQQQ price moves to $45. At the same way when the S&P 500 index is at $1,300 level, SPY stock is traded at $130 per share. Price dependence on the benchmark index is the major difference between ETFs and stock pricing. If stock’s price is driven by supply and demand on this stock then an ETF’s price does not depend greatly on the supply and demand on this particular ETF. Since an ETF tracks index, an ETF’s pricing depend on the supply and demand on all stocks listed in the benchmark index. Furthermore, when it comes to timing of ETFs, technical analysis should be rather a
